Return the Windfall Profits

There is a massive organization imposing a financial burden on the Pennsylvania economy. It is consuming an ever larger portion of the average person’s income. The costs for what it provides are rising dramatically. And when faced with unexpected “windfall profits,” this entity refuses to return any of its surpluses to those paying the excessive costs. No, it’s not Big Oil companies taking advantage of citizens—it’s Big Government. And it is time for the people to impose a “Windfall Profits Tax” on the Commonwealth of Pennsylvania.

Governor Ed Rendell recently called for a “windfall profits tax” on oil companies because their profits have increased with both rising prices and increased demand. Although there has been no evidence of wrong-doing, Governor Rendell wants to punish these companies with higher taxes, which government would then redistribute as it sees fit.

Despite the campaign rhetoric, it is not big oil, but rather Big Government which represents a greater burden on household income. It is Big Government that increases its“prices” excessively, and refuses to return surpluses to taxpayers. Oil companies will distribute their profits to shareholders or invest in efforts to increase production (and thus lower costs). Yet when the state budget sees a “windfall” in tax revenue, Governor Rendell and state lawmakers propose giving it not to those who overpaid, but rather to those who successfully lobbied for more taxpayer support—their special-interest “shareholders,” if you will.

Like oil profits, government revenue grows when we experience economic growth—oil companies benefit from greater demand for oil, whereas tax revenue grows with income growth. While oil companies have seen their profits grow in the past few years, state tax revenue has also grown beyond expectations. In the past two years, the Commonwealth collected a windfall in tax revenue above what was projected in the budget. Additionally, through ten months of the 2005-06 fiscal year, the state’s general fund has taken in $588 million above the budget projection. Instead of proposing to return this excess to taxpayers, Governor Rendell wants to create several new programs to hand out this money to special interests demanding more tax subsidies.

The Taxpayer Fairness Act (HB 2082) and its constitutional counterpart (SB 884) attempt to remedy this problem. While limiting the growth of state government to the change in inflation and population growth, except in certain emergency situations or when a two-thirds majority votes to exceed the limit, these bills would return excess tax revenue to those footing the bill—the taxpayers.

Governor Rendell, along with those who have joined him in calling for an oil windfall tax, uses rhetoric to feed off voter’s frustration with rising gasoline prices. Yet while gasoline prices have risen dramatically in the last few years, gas prices had been relatively steady prior to that. From 2003 to April 2006, the nationwide average price for a gallon of gasoline nearly doubled. However, from 1982 to 2003 the price per gallon increased only marginally. The total increase in gasoline prices from 1982 to 2006 was 132%. Over that same time, Pennsylvania state government spending increased a whopping 323% per person. Adjusting for inflation, the price of gasoline increased only 11% from 1982 to 2006, whereas the per- person price of Pennsylvania’s state government increased 102%. Who is really gouging who?

Compared with rising prices of government, the cost of gasoline represents pennies thrown into a wishing well. In the first quarter of 2006, Americans spent 2.9% of their personal income on gasoline and motor oil. In 2006, Pennsylvania taxpayers will pay 31.2% of their income in federal, state, and local taxes. Pennsylvania state government spends 12.5% of taxpayers’ personal income—more than four times what residents spend on gasoline. Rising gasoline prices may be taking an added bite of out the paychecks of Pennsylvanians, but nothing compared to the plundering done through taxes.

In fact, the increased spending on gasoline since 2003 represents less than 1% of personal income. However, Pennsylvanians will pay 3% more of their income in taxes in 2006 than they did in 2003. That increase alone represents more than total pending on gasoline.

Governor Rendell’s proposed 2006-2007 General Fund Budget represents an increase of 25% over what was spent in fiscal year 2002-2003 (the last year of the Schweiker Administration). Had the Taxpayer Fairness Act been in place during the Rendell administration, general fund spending would be capped at $23.36 Billion in 2006-07, with a projected four-year savings of $6.76 Billion. Add this to the surplus tax revenue collected this year, and Pennsylvania taxpayers would receive $1,400, per household, in refunds. It is time to return these government “windfall profits” to the citizens of Pennsylvania.

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Nathan A. Benefield is a policy analyst with the Commonwealth Foundation (, an independent, nonprofit public policy research and educational institute based in Harrisburg.