The Windfall Profit Tax: A Department of Energy analysis

Technical Report · Thu Oct 01 04:00:00 EDT 1987

OSTI ID:5687574

The Windfall Profit Tax (WPT) was enacted in 1980 at the same time as the enactment of phased decontrol of domestic oil prices. Average prices for domestic oil in 1980 under the price control system were about $24 per barrel, whereas world market prices were about $34 per barrel. Oil prices were expected to rise at rapid rates following decontrol. The tax was intended to collect the ''windfall'' that would accrue to oil producers when the price of oil was deregulated and allowed to move to the higher world market price. Contrary to expectations, oil prices fell rather than increased. The Windfall Profit Tax was expected to collect large amounts of money and, in fact, did bring in revenues of more than $25 billion during the peak year of 1981. Although oil prices had been expected to rise in subsequent years, they declined sharply. ''Windfall profits,'' as measured by the tax, disappeared in 1986, and WPT liabilities have been virtually zero since then. Nevertheless, continuing reporting requirements under the Windfall Profit Tax still impose a heavy cost burden on the oil industry. The American Petroleum Institute estimates that the industry's paperwork costs are about $100 million per year. The paperwork burden of the WPT is particularly onerous now because of the severe price collapse in 1986, which has threatened the ability of many oil-producing firms to stay in business. The Windfall Profit Tax also imposes a significant paperwork burden on the federal government. The WPT is counter-productive. The lower oil prices prevailing today make it unlikely that the tax will produce any significant revenues, but the compliance costs and the paperwork burdens remain. In addition, the tax serves as a deterrent to added investment and may reduce US oil production. Repeal of the WPT now would improve the oil investment climate and would help slow declining oil production.

• Research Organization: USDOE Office of Policy, Planning and Analysis, Washington, DC
• OSTI ID: 5687574
• Report Number(s): DOE/PE-0077; ON: DE88002806
• Country of Publication: United States
• Language: English

Related Subjects

02 PETROLEUM
020700 -- Petroleum-- Economics
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021000 -- Petroleum-- Legislation & Regulations
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293000 -- Energy Planning & Policy-- Policy
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GEOLOGIC DEPOSITS
INDUSTRY
LAWS
LEGAL ASPECTS
MINERAL RESOURCES
OIL FIELDS
PETROLEUM DEPOSITS
PETROLEUM INDUSTRY
PRICES
PROFITS
REPEALS
REPORTING REQUIREMENTS
RESOURCES
TAX LAWS
TAXES
WINDFALL PROFITS TAX