Unless world oil prices rise faster than the rate of inflation in future years, the windfall profits tax proposed this week by President Carter may not burden the oil industry as much as reports indicated.
Details provided yesterday by the Treasury Department show that the part of the tax related to the decontrol of U.S. oil prices would yield a maximum of $2.9 billion in 1982, the first full year of decontrol.
In 1983, the tax take would drop $2.2 billion and would decline by $200 million a year or more thereafter, a Treasury official explained.
A second part of the tax would kick in, at the same 50 percent rate, if the Organization of Petroleum Exporting Countries were to push up oil prices faster than the general rate of inflation.
If OPEC increased prices by 3 percent a year more than the rate of inflations, the windfall profits tax would cost the oil industry a total of $4.5 billion in 1982 instead of $2.9 billion.
The first part of the tax is calculated this way: The government would continue to figure what the selling price of different kinds of oil would have been under the present controls program. The difference between that price and the new higher price under decontrol would be taxed at a 50 percent rate.
There would be no tax on the portion of decontrol that occurs this year, and the tax would yield only about $700 million in all of 1980.
Beginning June 1, 80 percent of all production from marginal wells may be sold for the so-called upper tier price, which then will be about $13.15 a barrel. Such oil is now regarded as lower-tier oil and otherwise could be sold in June for about $5.90. The administration is defining marginal wells on a sliding scale relating out-put with the depth of the well.
This much of decontrol revenues would not be subject to the windfall profits tax.
Then beginning next Jan. 1, the remaining 20 opercent of marginal well production will be classed as would not be taxed.
Lower-tier oil from more productive wells that do not qualifty as marginal will become upper-tier oil at the rate of 3 percent a month after Jan. 1. Thus, by the end of 1980, 36 percent of such oil will be upper-tier. This increase would be subject to the 50 percent windfall profits tax.
Also beginning next Jan. 1, upper-tier oil prices will start rising month-by-month so that by Sept. 30, 1981, they reach the world price. That increase would be taxed.
Present price control rules allow for both upper and lower-tier prices to rise by 10 percent a year to offset inflation. The new tax would be levied only on the difference between what those prices would have been, adjusted by that inflation factor, and what the new higher sales prices are. Again, this would serve to limit the tax.
Even in fiscal 1982, when the first part of the windfall profits tax would hit its peak, the federal corporate income tax on the higher decontrolled prices will yield more than the new tax-$3.0 billion compared to $2.9 billion, according to Treasury estimates. The windfall profits tax, of course, is counted as a business expense and deducted like any other cost before the income tax liability is figured.
After Sept. 30, 1981, when all oil is decontrolled, the amounteof oil subject to the windfal profits tax would be assumed to decline by 15 percent a year-roughly the actual average decline for U.S. oil wells. That is why the tax take would decline fairly rapidly from that point on.
Meanwhile, the estimates assume that both the selling price and the old lower and upper-tier prices (which no longer apply to any oil at all but will have to be calculated for purposes of this tax) will increase in line with inflation.
Administration officials extimate that oil company revenues in 1982 will be $10.l6 billion higher than if controls were continued in their present form, and if OPEC increases its prices only in line with inflation. The federal government, through the new tax and the income tax, would get $5.9 billion of that. State and local governments through severance and income taxes would get another $2 billion or so.
But the real damage to the oil companies' pocketbooks will be done then, as now, by severance and income taxes, not the new misnamed windfall profits tax.