Excess profit tax isn’t what’s needed to combat inflation

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Montana Viewpoint By Jim Elliott
Thursday, June 16, 2022
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Inflation has settled in for the American consumer and it’s nowhere more obvious than at the gas pump. Not so coincidentally, the only ones who are able to stay ahead of inflation are those companies which are causing the inflation itself, the oil companies whose profits have skyrocketed at the expense of the American consumer. It’s not just the price of gas. Since virtually everything produced in America uses some kind of petroleum product in its manufacture, not to mention the fuel to get their goods to the store, the high price of oil is causing price increases across the board. Because of those record profits there have been a couple of proposals to place an “excess profits tax” on the oil companies. In my opinion, this is a waste of time.

I speak from experience. I wasted some of my time in the Montana House of Representatives when I carried a bill to tax the excess profits of oil companies during the Gulf War in 1991. It did not pass.

An excess profits tax has been tried several times before, most notably during the two World Wars. Excess profits are better defined as windfall profits that are realized because of external events, like war, not because of actions of the companies involved such as investment or innovation. Other than bringing in more tax dollars, excess profits taxes do little to address the root cause of the problem — greed. They will do nothing to lower inflation or decrease the price of oil, or gas, or grease or anything else.

So, forget special taxes on special companies in special circumstances and place more attention on changing the corporate tax code in America so that companies can’t get away with avoiding taxes completely.

When the Federal Corporate Income Tax was first introduced in 1909 Republican President William Howard Taft (a grossly underappreciated leader) championed the tax and the requirement that it be made public information. Taft wrote, “If now, by a perfectly legitimate and effective system of taxation, we are able to possess the government and the stockholders and the public of the knowledge of the real business transactions and the gains and the profits of every corporation in the country, we have made a long step toward that supervisory control of corporations which may prevent a further abuse of power.” (Special Message to Congress, June 16, 1909)

It did not take long for the publicity provision to disappear.

Research I requested from the Montana Department of Revenue in 2017 helps shine some light on corporate tax avoidance. Using data from 2015, the Department found that 156 of the 500 largest multi-state companies in Montana (based on the amount of sales in Montana) paid less than $500 in Montana Corporate income tax. That’s almost one third of the top 500. Most of those corporations had sales below $100 million, leaving 17 with sales over $100 million paying only $500, including one corporation with Montana sales of over $1.009 billion dollars. In addition, half of those 156 corporations paid less than $500 for the three years between 2013-15. Because Montana bases its corporate tax on what corporations report to the federal government it’s safe to say that those same corporations did pretty well on their federal taxes, too. The names of the corporations involved were not made public.

I have written before that the one thing that both the right and left have in common is their distrust of giant corporations, the men and women who lead them and the undeserved political influence which they enjoy. There, in my estimation, is where our energies should be centered. A good place to start is to make them put their money where their mouth is by paying their fair share of taxes, just like us common folks do.

Jim Elliott served 16 years in the Montana Legislature as a state representative and state senator, and four years as Chairman of the Montana Democratic Party. He lives on his ranch in Trout Creek.

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