Targeted Tax on Big Oil? Bad Idea

In the April 9 issue of Tax Notes AEI economists Kevin Hassett and Alan Viard discuss congressional attempts to impose targeted taxes on the five largest oil companies.

Hassett and Viard make the following points:

No coherent tax policy argument has been offered for singling out these five companies for tax rules different from those that apply to other corporate taxpayers. Instead, the proposed tax increases appear to be the result of political hostility driven by indignation at the oil producers’ high profits and by distress at high gasoline prices.

In a free society, however, government collects revenue from companies and individuals under neutral tax rules, not based on an ad hoc determination that politically disfavored companies or individuals have too much money

The debate on these targeted tax increases is based on several fallacies:

  • It is not true that oil producers can use foreign tax credits when paying royalties to foreign governments.
  • It is not true that the five large companies reap tax savings from “percentage depletion,” as they have been ineligible for this tax break since 1975.
  • It is not true that these tax increases would move the tax system toward neutrality. Quite the opposite, Hassett and Viard conclude that these targeted tax increases pose significant risks to the economy. Many studies have shown that violating the rule of law lowers economic growth and prosperity.


Kevin Hassett is AEI’s director of economic policy studies and is a former senior economist at the Federal Reserve and has served as a policy consultant to the Treasury Department and adviser to the presidential campaigns of John McCain (2000, 2008) and George W. Bush (2004). Hassett is available for interviews and can be reached at [email protected] or though [email protected]

Alan Viard is an AEI economist and a former senior economist at the Federal Reserve Bank of Dallas who has worked for the Treasury Department’s Office of Tax Analysis, the White House’s Council of Economic Advisers, and the Joint Committee on Taxation. Viard is available for interviews and can be reached at [email protected]

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About the Author

 

Kevin A.
Hassett

 

Alan D.
Viard

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