Oil Taxation

Report Outline
Controversy Over Oil Industry Profits
Evolution of Petroleum Tax System
Outlook for Changes in Oil Taxation
Special Focus

Controversy Over Oil Industry Profits

Record Income in Time of High Gasoline Prices

Oil and taxes—two subjects which most Americans would prefer not having to worry about—are suddenly uppermost in many people's minds as the nation approaches the April 15 income tax filing deadline in the midst of a gasoline shortage. That coincidence may help bring about the first changes in oil taxation in nearly five years, and perhaps the first substantial changes in nearly fifty years. Citizens who find themselves paying higher taxes have read or heard that major oil companies earned extraordinarily high 1973 profits on which they will pay traditionally low taxes. Demands for action focusing on the federal government have become so strong that, in the words of Business Week magazine: “Today, the oil industry is facing the greatest threat from Washington since the breakup of the Standard Oil monopoly 63 years ago.”

Proposals have been made in Congress and elsewhere to nationalize the oil industry, to create a competing national oil company, to split apart the major companies in anti-trust action, to bring the companies under strict federal controls, to roll back crude oil prices and to eliminate or modify the industry's various tax benefits—“loopholes” to some. Of all these possibilities, the last appears almost certain, although the form which oil taxation reform will take still is an open question. Sen. Charles H. Percy (R Ill.) summed up the mood of many members of Congress this year when he said in January: “Changes in the federal tax law applicable to the oil industry are clearly necessary so as to encourage investment in domestic exploration, production, and refining…and to assure the American public that its sacrifices have not been undertaken merely to add to already overflowing corporate coffers.”

Record-setting 1973 profits by many of the major U.S. oil companies were the primary impetus to calls for federal controls. Profits of the 10 largest firms increased by an average of 48 per cent over 1972 levels. Oil industry spokesmen contended that 1973 was a year of recovery from poor profit levels of the past several years. Annon Card, senior vice president of Texaco, argued: “In seven of the last 10 years the rate of return on investment in the petroleum industry was below that of all manufacturing companies.” In 1972, he said, the oil companies' rate of return was only 10.8 per cent compared with a 12.1 average for all manufacturing concerns. Bob R. Dorsey, chairman of Gulf, insisted: “Our returns are just pulling even with the rest of American industry. If that's an excess profit, I'll eat my hat.”