Past results of a windfall profit tax should be analyzed carefully
Regarding the April 28 article, "Congress, states look to tax oil firms' profits": Learn from history when analyzing the effectiveness of a windfall profits tax on the oil and natural gas industry. The article accurately described the harmful impact when Congress passed the 1980 windfall profits tax: "The tax generated far less revenue than expected and actually trimmed domestic oil production when it was tried a quarter-century ago."
As a result of the tax, domestic production fell by nearly 100 million barrels per year and extracted $40 billion from the industry that could have been invested in domestic production. In the end, the windfall profits tax led to less domestic production, more foreign imports, and less domestic investment - three bad results. It may make good press to call for windfall profits taxes, but it makes for bad domestic energy policy.
America's independent oil and natural gas producers are committed to investing in new energy production and infrastructure. In fact, independent producers are investing 150 percent of their domestic cash flow back into domestic oil and natural gas development - even borrowing funds to enhance their already aggressive efforts to find and produce more energy here at home.
A windfall tax will put a stranglehold on homegrown solutions to energy security by forcing companies to scale back their investment in research, exploration, and resources needed to find a solution to rising energy costs.
Chairman, Independent Petroleum Association of America
The April 28 article on windfall profits taxes states, "From 1980 to 1988, the windfall tax brought in $80 billion in gross revenues - far less than the $393 billion projected.... It also lowered US domestic production ... by somewhere between 1.2 percent and 4.8 percent during that period." This analysis is misleading at best. It ignores the fact that crude oil prices, which peaked at an average of $37 a barrel in 1980, fell to $14 in 1988. So, the windfall profits tax that was enacted probably brought in far less revenue than originally projected because profits were much lower due to the decline in crude prices.
And a 1.2 to 4.8 percent reduction in US crude production over an eight-year period is literally a drop in the bucket in comparison to the 37 percent drop in production between 1980 and 2004. That works out to an average 1.9 percent drop in production per year (compounded annually).
The April 27 article, "From Ireland, EU hears hum of cheap labor," dwells on the resistance of some European Union countries to open borders to migrants from Eastern European nations that joined the union in 2004. However, as the accompanying timeline points out, all EU citizens will have full labor mobility by 2011.
This is quite a contrast with the rising fortress mentality in this country. We can't even discuss a 20-year transition to open borders with Mexico, even though the income gaps with our southern neighbor are not that much wider than between Germany and Poland.
The Europeans have used development funds and social safety nets to reduce economic pressures for migration. We can learn a lot from their experience.
Global Economy Project Director, Institute for Policy Studies
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