Lawmakers Propose Tax on Oil Companies
RENEE MONTAGNE, host:
This is MORNING EDITION from NPR News. I'm Renee Montagne.
STEVE INSKEEP, host:
And I'm Steve Inskeep.
Oil industry executives are defending the profits they've earned from high oil and gas prices. ExxonMobil Chairman Lee Raymond was among those testifying before a Senate committee yesterday, and he said the nearly $10 billion that his company earned in the most recent quarter has to be viewed in a long-term perspective.
(Soundbite of Senate hearing)
Mr. LEE RAYMOND (Chairman, ExxonMobil): The petroleum industry's earnings are at historic highs today, but when you look at our earnings per dollar of revenue, a true apples-to-apples comparison, we are in line with the average of all US industries. Our numbers are huge because the scale of our industry is huge.
INSKEEP: Some lawmakers are dusting off a proposal from the 1970s to address what they see as windfall profits. NPR's Scott Horsley reports.
SCOTT HORSLEY reporting:
Senator Byron Dorgan is one of the leading advocates for a special tax on oil company profits. The North Dakota Democrat challenged industry executives yesterday for collecting big paychecks at a time when his constituents are facing big energy bills.
(Soundbite of Senate hearing)
Senator BYRON DORGAN (Democrat, North Dakota): In my part of the country, people are going into the winter--understand heating your home is not a luxury, it's a necessity--and they're going to pay a substantial amount more to keep their homes this winter while they open the paper and they say, `Boy, it's nirvana for you all, personally and for the companies.'
HORSLEY: Dorgan's proposed remedy is to tax oil company profits on prices above $40 a barrel and to give the proceeds to consumers to help pay their energy bills. It's an idea that has echoes of the late 1970s and former President Jimmy Carter.
(Soundbite of speech)
President JIMMY CARTER: I ask for your support in the battle to pass an honest windfall profits tax to finance a real energy security fund for our nation.
HORSLEY: Carter's windfall profits tax was, in a sense, taking back with one hand what the government had given with the other. The Carter administration had lifted Nixon-era price controls on oil. That was the windfall. By taking some of the money back in taxes, the president hoped to build an energy security fund that would help poor people pay their bills and invest in alternative fuels. Daniel Yergin, who writes about the program in his oil history, "The Prize," says it didn't work out that way.
Mr. DANIEL YERGIN (Author, "The Prize"): The effect of the windfall profits tax was perverse in that it led to lower domestic oil production and increased imports.
HORSLEY: Yergin, who heads Cambridge Energy Research Associates, says the windfall profits tax took effect just as the Iranian hostage crisis sent oil prices soaring. But within a few years, the price had dropped dramatically and the tax became irrelevant.
Mr. YERGIN: In a cyclical industry, you have periods when you have high profitability and then you have periods of low profitability. And that's been the story of the oil industry since the 1970s. Just within a few years of the passage of the windfall profits tax, there was really a period in which there was no profitability because the price collapsed.
HORSLEY: Exxon's Lee Raymond told senators yesterday that while they think in two-, four- and six-year election, cycles companies like his have to make plans with an eye decades into the future. Oil prices have fallen 16 percent from their peak level after Hurricane Katrina, and gasoline prices have fallen more than 20 percent. Energy prices today are still well above last year's, but analyst Phil Flynn of Alaron Trading in Chicago says artificial efforts to control those prices merely discourage conservation.
Mr. PHIL FLYNN (Alaron Trading): Maybe one of the reasons why we became so dependent on foreign oil is that oil prices were extremely cheap during the late '80s and the early '90s. There was no incentive for us to wean ourselves off our gasoline habit. People started to take energy in this country for granted.
HORSLEY: The proposal of a windfall profits tax has not gained much traction on Capitol Hill, even though at least one Republican, Senator Judd Gregg of New Hampshire, has embraced the idea. Others have called for the oil industry to voluntarily donate some of its profits to a program that helps poor people pay their heating bills. California Senator Barbara Boxer asked three of the industry executives who testified yesterday to donate their personal bonuses as well.
Scott Horsley, NPR News.