As motorists watch the price of gasoline hover near $4 a gallon, Republicans and Democrats still can't agree on how to stop rising energy prices.
On Tuesday, Senate Republicans blocked a measure that would have placed a windfall profit tax on the top five U.S. oil companies as a way to take away some of their record gains.
The Democrat-sponsored energy measure would have erased $17 billion in tax breaks for oil companies over 10 years and would have created a tax on "unreasonable" profits.
Taxing the Hand that Feeds Them?
A windfall profits tax is a tax on profits a company or industry earn through influences usually beyond their own invested efforts. In 1980, Congress passed such a tax on oil companies because of the profits they gleaned a result of an Arab oil embargo.
During that time, Congress projected the windfall tax would bring in $393 billion in extra revenues for the U.S. government. But in the eight years it was enacted, the levy collected only $80 billion. Industry experts say the decreased profit margins for the oil companies limited their abilities to reinvest in more domestic oil production. The lowered production resulted in lower tax revenues.
President Ronald Reagan ended the tax in 1988.
Conservatives also argue that a windfall tax would only force gasoline prices up higher, as oil companies pass on the increased costs to the consumer.
"This bill is not a serious approach to oil and gas prices," Minority Leader Mitch McConnell, R-Ky., said. "Raising taxes on those who produce something leads to higher prices on the product they sell."
But Democrats say that Congress needs to do something about big oil's record profits.
"Americans are furious about what's going on," Sen. Byron Dorgan, D-N.D., said. They want Congress to do something about oil company profits and "an orgy of speculation" on oil markets.
Gas Prices to Remain High
Meanwhile, the Energy Department on Wednesday said motorists can expect gasoline prices to remain close to $4 a gallon through next year.
Oil prices should remain well above $100 a barrel through 2009, according to Guy Caruso, head of the department's Energy Information Administration. Caruso said that oil prices are likely to stay high far into the future.
Caruso told a House hearing in Washington that crude oil prices are likely to average $126 a barrel next year, $4 higher than this year.
He said gasoline prices are expected to peak at $4.15 a gallon in August, but won't go down much. The agency projects gasoline averaging $3.92 a gallon through 2009.
Source: The Associated Press, The Washington Post