Newswire - New Tax on Major Oil Companies Proposed

By Jennifer Schultz

WASHINGTON, Sept. 20 -- Alleging that the oil industry is price gouging consumers as the winter heating season approaches, Sens. Christopher Dodd, D-Conn., and Byron Dorgan, D-N.D., proposed legislation Tuesday that would impose an "excess profits" tax on major U.S. oil companies and return the money to consumers in the form of tax rebates..

The bill comes at a time of growing impatience over rising fuel costs and concern about increasing home-heating costs.

Dodd and Dorgan contend that consumers should have some way to address what amount to "price gouging" by major oil companies. "We're convinced it's deliberate-the increases," Dodd said.

Blaming what he called a "do-nothing Congress" when it comes to reining in special interests, Dodd said at a press conference that Americans are angry over energy prices "and know we're doing nothing about it."

A recent report by the Department of Energy predicted a 33 percent increase in home heating costs in the Northeast. Though bill is unlikely to become law. Even if it did, it would have no effect on energy prices this winter, though the senators said it would create change down the line.

Important details remain to be resolved, for instance, on how to enforce the tax and how rebates would be paid to consumers. As it stands, the bill would impose a 50-percent tax on oil profits made on crude oil sales of above $40 a barrel. This threshold was determined by looking at past market prices and adjusting for inflation. The theory is that increased taxes would act as a deterrent to unjustly high oil prices. An exception would be made for investment of such profits directly into research and development.

But "oil is a risky business," said Myron Ebell, an expert on energy policy at the Competitive Enterprise Institute, who warned that a tax on profits would discourage new investment in oil.

"People invest in business to make a profit," he said, and the notion of taxing oil profits is "morally objectionable."

On Monday, the crude oil cost per barrel closed at just under $70.

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