Republican Whip Roy Blunt

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GAS PRICES: THE LESSONS OF 1980

CRS Concludes That The 1980 “Windfall Profit Tax” Reduced Supply And “Made The United States More Dependent On Foreign Oil”

THE 1980 WINDFALL PROFIT TAX “MADE THE UNITED STATES MORE DEPENDENT UPON FOREIGN OIL”

CRS REPORT: “Dependence On Imported Oil Grew From Between 3% And 13%.” (Salvatore Lazzari, "The Crude Oil Windfall Profit Tax Of The 1980s: Implications for Current Energy Policy," Congressional Research Service, 3/9/06)

CRS REPORT: “The WPT [Windfall Profit Tax] had the effect of reducing the domestic supply of crude oil below what the supply would have been without the tax. This increased the demand for imported oil and made the United States more dependent upon foreign oil as compared with dependence without a WPT.” (Salvatore Lazzari, "The Crude Oil Windfall Profit Tax Of The 1980s: Implications for Current Energy Policy," Congressional Research Service, 3/9/06)

CRS: “THE ENTIRE EFFECT OF THE TAX IS TO REDUCE DOMESTIC PRODUCTION AND SUPPLY”

CRS REPORT: “From 1980 To 1988, The WPT May Have Reduced Domestic Oil Production Anywhere From 1.2% To 8.0% (320 To 1,269 Million Barrels).” (Salvatore Lazzari, "The Crude Oil Windfall Profit Tax Of The 1980s: Implications for Current Energy Policy," Congressional Research Service, 3/9/06)

CRS REPORT: “Oil producers could not shift the tax forward as a higher oil selling price because the purchaser would merely substitute imported or tax-exempt crude. Instead, the WPT reduces the net selling price paid to producers. As noted earlier, the first purchaser (generally the refiner) subtracted the tax from the price paid to the producer (supplier) -- the producer's net selling price of each barrel of oil was less by the amount of the WPT. This inability to shift the tax forward implies that the entire effect of the tax is to reduce domestic production and supply. In other words, U.S. domestic oil production was, to some degree, lower as a direct result of the WPT.” (Salvatore Lazzari, "The Crude Oil Windfall Profit Tax Of The 1980s: Implications for Current Energy Policy," Congressional Research Service, 3/9/06)

Seven Years Later …

Analysis says windfall oil tax hurts production

Phillip J. Garcia

United Press International

October 16, 1987

Oil-state lawmakers pushing repeal of the windfall profits tax have some more ''ammunition'' with an Energy Department analysis concluding daily U.S. oil production could increase by 75,000 barrels upon repeal.

The 12-page report, released Thursday, recommends repeal of the 7-year-old tax even while acknowledging the difficulty of judging the effect on domestic production. The tax no longer produces significant revenues, it argued, and continues to burden the industry with annual paperwork costs of $100 million.

Repeal of the tax ''would increase the production response to any increase in oil prices that investors expect to occur between now and 1993, when the tax is scheduled to end,'' the analysis said.

Basing estimates on figures from the American Petroleum Institute, it said, ''If oil companies believed oil prices would increase to the mid-$20 per barrel range in the near future, repeal of the tax would encourage oil investment sufficient to increase domestic production by about 75,000 barrels per day.''

Oil prices recently have hovered around the $20-a-barrel range.

The windfall profits tax was enacted in 1980 in conjunction with decontrol of domestic oil prices. It was designed to tax oil producers who were expected to gain a windfall when deregulated prices climbed to higher world market levels.

Thus far, however, the tax has ''collected only about one-third of the originally anticipated revenues,'' the government report said. Total projected revenues were $227 billion.

''In 1981, the peak revenue year for the (tax), collections were more than $25 billion,'' the analysis said. ''By 1985, collections had fallen to less than $5 billion, and in 1986, collections were almost zero, consisting primarily of delayed payments from 1985.''

In 1987, revenues from the tax have been ''negligible,'' it said.

The Senate has approved repeal of the tax in its version of trade legislation but the House did not. The Energy Department study was done at the request of Sen. Lloyd Bentsen, D-Texas, co-chairman of the House-Senate conference panel working out differences in the trade bills.

''It will be difficult to persuade the House to agree, given that body's past support for the windfall profit tax, but this new analysis gives us some persuasive ammunition,'' Bentsen said in a statement Thursday.

Bentsen will direct his efforts at Rep. Dan Rostenkowski, D-Ill., chairman of the powerful tax-writing House Ways and Means Committee and chairman of the House-Senate trade bill conference.

Rostenkowski remained unsympathetic to repealing the tax Thursday. An aide to the congressman said Bentsen can ''trot out all the reports'' he wants to back arguments for repeal but Rostenkowski is not ''going into these negotiations ready to give it up.''