Taxing Profits

By Mike Leara

Windfall Profits Tax will hurt our economy.

Taxing profits - St. Louis Business Journal

Editor:

The year 2005 was a lackluster year for investors; the Dow-Jones Industrial Average was mostly flat and other stock indexes showed only modest growth. For millions of aging baby boomers, the investments made in preparation for retirement have little time left to grow. The success of American companies -- and by extension, the stock market -- represents the difference between a comfortable retirement and poverty.

We have plenty of reasons to be apprehensive about economic growth. As an investment advisor, I have serious concerns about this year's potential for growth in light of the Senate's plan to impose a tax on the profits earned by America's oil producers. Senate Bill 2020 calls for taxing oil company profits, a plan that could cost oil companies an estimated $5 billion over the next three years. And because this tax only applies to American oil companies, it would effectively give a huge subsidy and competitive advantage to foreign energy companies.

Lawmakers and citizens are understandably worried about high energy prices. Home heating costs are projected to increase 30-70 percent this winter, and gasoline prices are inching up to where they were after Hurricane Katrina.

If the Congress approves a Windfall Profits Tax (WPT) on energy companies, the prospects for growth in investments this year drops dramatically. Because many retirement and mutual fund plans contain oil stocks, taxing those companies will only hurt investors. It is difficult to find a consumer benefit in the bill; fuel prices would remain high and consumer prices would rise as a result.

The United States has several options to increase our supply of oil and gasoline. Reserves sit untouched in ANWR, the Outer Continental Shelf, and the Rockies. U.S. energy companies can help meet the rapidly expanding global demand -- projected to rise 50 percent over the next decade -- if they are allowed to compete on a level playing field. Imposing additional taxes on domestic oil producers will only hurt their competitiveness.

Investment in America and its businesses is critical in the new global economy. Cheap consumer goods imported from the Pacific make it more difficult for American manufacturers to compete, and adding a tax to the profits earned by domestic oil producers will tip the scales in favor of foreign competitors.

Twenty years ago, another Congress upset about high oil company profits imposed a Windfall Profit Tax believing that it would ease consumers' pain. It had the opposite effect. As domestic oil production fell, our reliance on imports increased, sending America's oil industry into a deep depression. By the time the WPT was repealed, the nation's economy was headed towards a recession. Our current representatives can benefit from the knowledge of the mistakes of their predecessors. High energy costs are everyone's concern, and finding a solution for consumers and investors should be Congress' top priority.

Mike Leara, St. Louis