API'S DiBONA SEEKS TO HEAD OFF 'WINDFALL PROFITS' TAX

Charles J. DiBona, president of the American Petroleum Institute, issued this statement on industry earnings: Major oil companies have begun reporting their earnings for fourth quarter 1990. Considerable discussion is occurring in the media and among the public about reports that show large increases in profits. Some members of Congress have reacted by proposing a "windfall profits" tax on oil companies. Additional taxes on the petroleum industry would be counterproductive.

Feb. 4, 1991

2 min read

Charles J. DiBona, president of the American Petroleum Institute, issued this statement on industry earnings:

Major oil companies have begun reporting their earnings for fourth quarter 1990. Considerable discussion is occurring in the media and among the public about reports that show large increases in profits. Some members of Congress have reacted by proposing a "windfall profits" tax on oil companies.

Additional taxes on the petroleum industry would be counterproductive.

The windfall profits tax that existed in the 1980s was not a tax on profits but a tax on production and the price of crude oil. The effect of specially taxing this one industry in the economy was to discourage investment in U.S. oil and gas production and thus to encourage more oil imports.

The nation continues to pay the price today for that decision that cost millions of barrels of oil that could have been found and produced and reduced America's dependency on foreign oil.

AN UNUSUAL QUARTER

In several ways, fourth quarter 1990 was unusual for the oil industry.

Net earnings in fourth quarter 1989 were the lowest of any single quarter in the 1980s. Therefore the 1990 figures appear unusually high by comparison.

During the first three quarters of 1990, oil industry earnings were below those of 1989.

The surge in the fourth quarter was related to an increase in the average price of crude oil. Since then the price Of Oil has dropped. Although it is early in the present quarter, lower oil prices would imply lower earnings for first quarter 1991.

When comparing the oil industry with other manufacturing industries, profitability-net income as a percentage of stockholders' equity-is a more relevant measure than total profits. In fact, oil industry profitability has lagged that of nonoil companies the last 7 years, including the first three quarters of 1990.

Higher earnings by oil companies will mean larger amounts of corporate taxes paid to the federal and state governments. Higher earnings also can be expected to be reinvested to produce more oil and gas, thus helping to ensure the nation's energy security.

That has been the pattern.