View Full Version : Legal Windfall Profits Tax Constitutional?

08-04-2008, 01:09 PM
Found this on another site....Interesting read

Bill O'Reilly began his afternoon radio show by talking about Sen. Obama's windfall profit tax scheme he intends to implement. Mr. O'Reilly suggested that Sen. Obama's scheme will fail on the grounds that such a tax would be unconstitutional. This puzzled me; I know that a windfall profits tax was previously implemented but repealed in the late 1980's. It seems like an interesting topic to debate so I wanted to bring it forth. It is possible that this has been discussed before, but since Sen. Obama has recently introduced a new political ad that advocates for the windfall profits tax I thought it would be appropriate.

I'm not a lawyer, nor would I ever want to be, but looking at the previous court case may provide us some clues as to what may happen if a windfall profits tax is challenged in court.


Presumably Mr. O'Reilly was referring to the Uniformity Clause - he didn't mention it specifically before I turned off the radio.

If I get this wrong, please correct me. It seems, according to this document, that this original windfall tax was a reaction to potential "windfalls" that companies would gain as a result of recent deregulation (elimination of price controls). The question was whether or not exempting domestically produced Alaskan oil from this tax violated the Uniformity Clause. They were not challenging the constitutionality of imposing a unique tax on one industry; they were challenging whether or not geographical concerns should be relevant in determining the constitutionality of an exemption on a tax. Congress wanted the exemption because of unique "climactic and geographic conditions" that made costs of drilling in Alaska "15 times higher" than in other locations.

A District Court in Wyoming ruled that the exemption was unconstitutional, claiming that exemptions based on geography were "simply not allowed." Because this provision could not be separated from the Act, the entire windfall profits tax act was invalidated. Citing an 1884 case (and this is what particularly interested me), the Court stated that the Uniformity Clause specifies only one limit on the government's ability to impose indirect taxation; that such taxes must be uniform throughout the US, and that uniformity is only achieved when the tax "operates with the same force and effect in every place where the subject of it is found."

In 1983 the Supreme Court reversed this decision. The Court stated the reason for the Uniformity Clause was, according to Justice Joseph Story (leading post-Revolution SC judge, from his then 150-year old 'Commentaries on the Constitution of the United States) , was to cut off preference of one state over another and to prevent the monopolization of trade via collusion between groups of states. They go on to argue, based on previous cases, that the Framers never intended on limiting categorization of taxation, but only insisted that the taxation is uniform where it is found. In other words, as long as the same rate is being charged across the United States, and as long as the subject of the tax is the same, it is not a violation of the Uniformity Clause.

Therein lies the rub. Let's jump forward to present day and our present situation. Mr. O'Reilly suggested that Big Oil would litigate a windfall profits tax to death. Personally I'm not a fan of the idea. Still, if Big Oil challenges it in Court it would seem the government would argue that the tax is not a violation of the Uniformity Clause; that in fact because the tax is being levied everywhere it is found (Exxon, Chevron, etc.) that the tax is being uniformly applied and is therefore constitutional. It also seems that the fact that such as tax has existed previously doesn't help Big Oil's case.

So, can Big Oil credibly make a case that establishing a special tax for one industry is unconstitutional? I'd prefer that we didn't enact the tax, for a plethora of reasons. Congress used rationale in the 1980's that they are rejecting today. They wanted the exemption to prevent excessive economic burdens then but seem uninterested in the costs such a tax would bring on today, precisely because of record profits. In my estimation it seems like Big Oil might very well lose in court if they challenged it. I would love some other perspectives.

08-04-2008, 01:12 PM
Link please.

08-04-2008, 01:17 PM
And who thinks dems want lower gas prices? LMAO

08-04-2008, 01:18 PM
That said, that is actually a pretty interesting read.

Of course, the jist of the article is that the Supreme Court has ruled windfall taxes are constitutional and that there aren't enough distinguishing factors for Big Oil to overturn the ruling.

That's my take too. At this point you've either got to have a different set of laws passed through Congress to overrule the 1983 ruling, or something to distinguish this situation from the 1983 situation. It doesn't appear that there's enough to do that.

So right now we're looking at total Constitutionality. If what you were looking for was an honest evaluation, HCF, that ought to make you feel better.

08-04-2008, 01:21 PM
I'm sure that sadistic taxation will bring down prices. That always works.

08-04-2008, 02:02 PM
how freakin' stupid is this, they will just raise the price.

08-04-2008, 02:28 PM
how freakin' stupid is this, they will just raise the price.

We pay more $$ to the oil companies ... the government gets more $$ from the oil companies ... We get :hump: ... Everyone is happy right?

08-04-2008, 02:31 PM
I don't know about unconstitutional, but setting a bad precedent and stupid are adequate descriptions.

08-04-2008, 02:34 PM
So, can Big Oil credibly make a case that establishing a special tax for one industry is unconstitutional?

I don't have time to read this whole thing or to fully analyze but I got the basic idea here. In fact I was thinking about it earlier today when reading that other industries are taxed at 18% but oil at 11%. ( article argued that it was a subsidy due to this.) I don't recall what kind of tax it was but it got me to linking that it's not equality under the law.