Taxing Big Oil

A compromise on windfall

Exxon up 55%, Gulf up 68%, Mobil up 78%, Getty up 83%, Texaco up 106%. And on and on.

Once again it was time for Big Oil's profits parade. Against a backdrop of soaring gasoline costs and exploding heating-oil prices, one oil company after another last week went through the now familiar ritual of releasing eye-popping reports of annual earnings. Exxon's earnings on revenues of $84.3 billion totaled $4.3 billion, making it the most profitable corporation in American industry. Yet even as the announcements rolled in, Senate and House conferees were reaching final agreement on a compromise over a key aspect of Jimmy Carter's nine-month-old call for a windfall-profits tax on the oil industry.

Carter's tax is intended to skim off much of the increased revenues that the companies have been earning from the decontrol of domestic crude oil prices. But how big a tax, and for how long, have been major areas of congressional dispute. A joint congressional conference committee headed by Louisiana Senator Russell Long and Oregon Congressman Al Ullman finally agreed on the size. In a sharp horse-trade, they split the difference between a House-passed bill that might have yielded $277 billion over the next ten years and a Senate version that might have produced about $178 billion during the period, and came up with a package that is expected to yield precisely $227.3 billion by 1990.

Politically, some windfall tax was necessary to make crude oil decontrol, which is helping to cut energy consumption by raising petroleum prices to the world level, acceptable to both the Congress and the public. Whatever its political virtues, the tax hardly seems geared to help meet another key energy policy goal: boosting domestic oil production to the maximum. Instead of using tax incentives to coax as much crude as possible from the ground, the compromise so far amounts to little more than a confusing grab bag of mini-taxes. The three main components:

Old oil: A base price of $13 per bbl. has been set for domestic oil that has already been discovered. On whatever they earn from selling the oil above that price, big oil companies will pay a flat tax of 70%, smaller producers will pay 50%.

Stripper oil: Any big oil company with a well that yields less than 10 bbl. per day will pay a 60% tax on that oil, above a base rate of $16 per bbl. Smaller companies will pay at a 30% rate.

New, tertiary and heavy oil: The easiest treatment will go to petroleum that was not discovered before 1978, as well as to oil that either is so thick as to have limited value or is impossible to get out of the ground without major investments in so-called enhanced recovery techniques. There will be a 30% tax rate, on a base of $16.55, for large and small producers alike.

Last July Carter pledged to use the proceeds of his proposed tax to set up an Energy Security Corp. to help develop an enormous new industry for the production of gas and oil from alternative sources such as shale and coal. Other revenues were to go for bolstering mass transit, subsidizing energy conservation and helping poor people pay part of the increased cost of fuel.

But legislators are eying the tax for just about every pet project. Even the White House no longer seems wedded to spending the money solely for energy development. As one top Administration official told TIME Washington Correspondent Richard Hornik: "The tax is going to raise more money than is needed. Our concern now is to see that the money is not tied up." Translation: Spending it to cut the budget deficit would be best, but shoveling out the money on almost anything will do. That sort of attitude, which treats the levy as a windfall bonanza for politicians, makes a cruel joke of the tax. If the proceeds are not devoted to helping the U.S. out of its energy bind, then the nation would be better off with no such tax at all.

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