Governments Face Mounting Pressure To Tax Oil Company Profits

by Leroy Baker, Tax-News.com, New York

31 October 2005

Facing mounting pressure from members of Congress to address escalating energy costs, the Bush administration last week rejected calls for extra taxation on the soaring profits of oil companies.

Responding to questions in a Senate hearing on Thursday, Energy Secretary Samuel Bodman stated that he would be opposed to any proposals that would amount to a "windfall tax" on the profits of energy companies, suggesting that similar measures had failed to work in the past.

"We have proven, I thought, to our general satisfaction back in the '70s and '80s that that didn't work," he remarked.

Bodman made his comments in response to a question concerning a report by a Deutsche Bank analyst that an extra tax on oil companies could help subsidise heating oil for low income families. Senate Democrats have also called for a 50% tax on every barrel of oil sold for more than $40.

Even Republicans have suggested that the oil companies should be brought to book for 'immorally' benefiting from the rising price of oil, which has traded above $60 on the New York markets almost every day since the end of August, helped by local fuel shortages caused by Hurricanes Katrina and Rita.

"If there are those who abuse the free-enterprise system to advantage themselves and their businesses at the expense of all Americans, they ought to be exposed," Sen. Bill Frist (R - Tenn) remarked in a statement to announce a Senate hearing where oil company executives will be asked to explain why energy prices are so high.

Meanwhile, similar arguments are breaking out across the Atlantic, where experts have suggested that the British government will be unable to resist the temptation of raising additional taxes from the profits of oil firms, not least to help Chancellor of the Exchequer Gordon Brown to dig himself out of a deepening fiscal hole.

"As pressure mounts for the Chancellor to come up with solutions to plug the £11 billion ($19.5 billion) black hole in his public finances...and the slowdown in consumer spending beds in for the winter, the oil companies are one of the most obvious targets for tax increases and fiscal change," consulting firm Ernst & Young said in a statement, reported by Dow Jones.

A 48% year-on-year rise in the price of the North Sea Brent Crude contract, traded on London's International Petroleum Exchange, has contributed to massive profits for the UK's two main oil companies. Last week, Royal Dutch Shell announced a record net profit of $9 billion for the third quarter, whilst BP saw profits reach $6.5 billion.

The British government has neither confirmed nor denied that it is considering a windfall tax on the profits of the oil majors.

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