Retirees and employees saving for retirement would bear the brunt of any windfall profits tax on oil companies, according to a study by Robert J. Shapiro, chairman of business consulting firm Sonecon, and Nam Pham, an economic consultant to research firm NDP Group.
Messrs. Shapiro and Pham estimate that the windfall profits tax proposed in Congress would generate between $18 billion and $104 billion in gross revenues between 2006 and 2010, based on oil prices of $45, $50, $55 and $60 per barrel for each successive year. But because corporate tax payments would be deductible, the net five-year revenues would be less than half that, ranging from $8.6 billion to $48.6 billion.
For oil company shareholders, the opportunity cost from the tax would range from an average of $21.3 billion to $121.8 billion a year, depending on oil prices and inflation, according to the study. And while the higher oil prices that trigger the windfall profits tax would also increase oil companies' earnings and market capitalization, the tax would reduce any higher market cap by between 2.7% and 10.9%, depending on oil prices.
Messrs. Shapiro and Pham determined that those costs would be borne by oil company shareholders, many of whom hold oil stocks through pension fund or retirement accounts. Americans maintain 175 million private and public pension or retirement saving accounts, with an average value of $66,000 per account, according to the study.
The researchers found that those accounts hold about $267 billion in U.S. domestic oil and gas company stocks, and although higher oil prices - and company earnings - would increase the value of those holdings, the windfall profits tax would wipe out any gain. The tax would cut the value and dividends of those pension and retirement savings holdings by $8.7 billion to $50 billion a year, depending on oil prices, or between $50 and $287 per account per year. For state public employee pension funds, the cost could reach $886 per account per year because of higher allocations to oil and gas company stocks.
"This analysis demonstrates that a windfall profits tax on U.S. domestic oil companies would have a series of unexpected or adverse effects. It would raise considerable revenues, but much of those revenues would be offset by reduced corporate income revenues," Messrs. Shapiro and Pham wrote. "Since 41% of oil company stocks are currently held in various forms of pension plans and retirement accounts, retirees and those currently saving for retirement would bear much of the burden of those foregone gains."
