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Windfall Profits Tax will Have Negative Economic Impact on Retirement Accounts

A new study shows that the economic impact of a windfall profits tax on oil companies could be substantial.

(PRWEB) November 23, 2005 -- 4.3 % of retiree equity investments are in oil. Controversial tax could impact some accounts by as much as $886 per year.

A new study shows that the economic impact of a windfall profits tax on oil companies could be substantial. The tax will cost pension and retirement savings holdings an average of $8.7 billion to $50 billion per year in foregone gains and dividends depending on the price of oil. Individual accounts could lose as much as $287 per year. Pension accounts for public state and local employees could lose as much as $886 per year.

The study was conducted by Dr. Robert Shapiro and Dr. Nam Pham. Dr. Shapiro is chairman of Sonecon and former Undersecretary of Commerce under President Bill Clinton. Dr. Pham is an economic consultant to NDP Group and former Chief Economist of the Asia Region for Standard & Poor’s.

Drs. Shapiro and Pham examined Senate Bill 1631, the Windfall Profits Rebate Act of 2005, over a five year period. In addition to the reduced earnings on pension accounts, the study found that the net revenue of the tax would be about half the levels anticipated by Congress because the payments would deductible under the corporate income tax. The measure would also discourage domestic oil production causing the US to be even more dependent on foreign sources.

The data in this study shows that a substantial share of the cost of a Windfall Profits Tax would be borne by retirees and those saving for retirement. Drs. Shapiro and Pham explain that “the various forms of retirement funds and savings, held by both current retirees and current workers, hold approximately 50 percent of their total assets in equities, of which approximately 4.3 % are shares in US domestic integrated oil and gas companies.”

Congress is expected to debate a windfall profits tax in the coming weeks. This paper is the first to break down the economic impact and the conclusions are not good. Drs. Shapiro and Pham argue that: “This analysis demonstrates that a windfall profits tax on US domestic oil companies would have a series of unexpected or adverse effects… revenues would be offset by reduced corporate income revenues…(the windfall profits tax will) reduce domestic oil production by an average of 100 million barrels per year.

Finally, since 41 percent 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".

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