Momentum Grows For US Oil Windfall Tax After Californian Decision

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

27 April 2006

After the price of a barrel of crude oil hit new record levels on the New York and London markets last week, momentum appears to be building towards the national imposition of a windfall tax on energy companies, which are making huge profits as a result of high prices.

Earlier this week, lawmakers in California approved a bill which would levy a 2 percent tax on oil-company income of more than $10 million annually.

The proposed measure, approved by the Revenue and Taxation Committee by 4-3 on Monday is intended to provide revenue for the elderly on low and moderate incomes to help pay for their medication.

The bill will now go to the Appropriations Committee, before moving to the full Assembly.

The bill was sponsored by Democratic Assemblyman Johan Klehs who accused oil companies of profiteering from last year's Gulf Coast disaster.

"They should be ashamed of themselves," Klehs remarked in January, after Chevron reported that their fourth-quarter profit climbed 20% to $4.14 billion, and Conoco/Phillips announced a 51% rise in profits.

Last Friday, US crude futures for June delivery hit a record $75.35 per barrel, pushing gasoline prices up to $3 per gallon in many areas of the country.

"Industry experts have said that these prices have no relation to the cost of extracting and transporting and processing crude oil. It seems to me that the only reason prices are where they are, is pure and simple greed,” he added.

At national level, Senate Democrats have been calling for a 50% tax on every barrel of oil sold for more than $40, and even some Republicans have suggested that the oil companies should be brought to book for 'immorally' benefiting from the rising price of oil.

Appearing on CNN's 'Late Edition' last weekend, Senator Sen. Arlen Specter, a Pennsylvanian Republican, suggested that a number of measures are needed to apply downward pressure on prices, namely a windfall tax and reducing the concentration of market power held by a few large oil firms.

"I think windfall profits, eliminating the antitrust exemption, considering the excessive concentration of power are all items we ought to be addressing," he stated.

Unsurprisingly, given the Bush administration's close links to the oil industry, the White House has traditionally resisted calls for an extra profits tax. However, under pressure to act to curb escalating energy and gasoline prices, Bush has performed something of a u-turn recently by suggesting that tax breaks for oil companies should be cut while tax breaks for renewable energy sources encouraged.

However, governments elsewhere in the world have been less reticent to collect a larger slice of the huge profits being made by oil companies. Last year, the UK doubled the supplementary tax on North Sea oil companies to 20%.

Meanwhile, in South Africa, the government is set to announce a taskforce to explore the possibility of imposing a windfall tax on the profits of Sasol, the petrochemical group which recently announced an 86% increase in its earnings for the first half of the 2006 financial year.

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