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Windfall Profits Tax: My Opinion

by Expert Lilliana | 15 Jun 2017

Many people today are angry about the price of gas. According to the Energy Information Administration, gas prices in the United States are hovering right around $4.00 per gallon (Energy). Their website indicates that this is an increase of more than $1.00 per gallon since this same time last year. Most people think that oil companies are charging much more than they should be for oil products and raking in offensive amounts of profits. I agree with their opinion. “In 2007, ExxonMobil delivered a record $40.6 billion in net income” (ExxonMobile, pg 2). In my opinion, making record profits like this in a time when people are really struggling to make ends meet is obscene.
One solution that has been mentioned to make oil companies lower their profits and help make oil products more affordable for people in the United States is a windfall profits tax. A windfall profits tax is a tax that is imposed on a company that makes an extravagant profit in a short period of time (Windfall). This sounds like a good idea at first glance, but on closer inspection, some big problems become very apparent. First, there is no set amount of tax that should be applied. Second, there is also no agreement on how much is considered extravagant and in what amount of time. It all seems to be a matter of opinion. It is not fair to impose this tax on a company or industry just because some people do not agree with how much the company or industry is earning and not have some guidelines in place that would make this tax applicable to all companies that earn a certain amount in a certain time period.

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A third problem possibly unforeseen by proponents is that a new tax on gasoline and other oil products would raise the price of these oil products. Americans are very dependant on oil. We use it to heat our homes, to fuel our vehicles, and to fuel our businesses. We have not done enough to promote alternative energy sources so we are stuck between a rock and a hard place. Right now, we cannot reduce our demand for oil products enough to make the oil companies lower their prices. The oil companies know this and know that if they are forced to pay a large amount of tax on their profits, they can always raise the price on their products to cover this extra cost. This windfall profits tax probably would just make the problem worse.

While I do agree that oil companies need to reign in their profits, I do not agree with imposing a windfall profits tax to make them do this. Yes, the government would receive more tax revenues and this could possibly be passed back to the American people in the form of stimulus checks or another type of tax break. Yes, it would decrease the amount of profits that the oil companies such as ExxonMobil would be able to make. These positives make a windfall profits tax seem like a positive thing, but the backlash from the oil companies could make the situation worse. By levying this new tax on oil companies, we could make the price of oil products rise not just here, but possibly around the world. This price increase would make the everyday cost of getting to work, running a business, or shipping food to starving people in refugee camps around the world too high for many people here and overseas.

A better and farther reaching alternative to a windfall profits tax would be to decrease our demand for oil. In economics, the Law of Supply and Demand states that “when supply exceeds demand, sellers must lower prices to stimulate sales” (Microsoft). If we can develop technology that will allow us to power our homes, vehicles, and businesses without using oil products, we would reduce our demand for oil enough to make oil companies lower their prices. This would also help our environment become cleaner and in turn help people live a more healthy life. This technology exists. All we have to do is invest in developing it and put it to work for ourselves. A windfall profits tax is not the right way to fix our oil price crisis. Alternative energy is.

References

  • Energy Information Administration. Weekly U.S. Retail Gasoline Prices, Regular Grade. 
  • ExxonMobil: Taking on the World’s Toughest Energy Challenges. Summary Annual Report.
  • Microsoft Encarta Online Encyclopedia 2008. Supply and Demand. 
  • Windfall Profits Tax definition. 
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