Statement Proposing Enactment of an Emergency Windfall Profits Tax.

ONE of the central facts underlying the national energy crisis is that we have a shortage in the production of domestic crude oil. This shortage has been further aggravated by the embargo of oil by the Arab nations. It is one of the ironies in the present situation, as well as one of the sources of confidence that we can solve the energy shortage, that the United States is an energy-rich nation. In addition to our superabundance of coal, oil shale, natural gas, and other resources, both natural and technological, we also possess extensive supplies of oil. In the past we have drawn on proven supplies in the most economical manner, and this practice, coupled with heretofore cheap imports, has provided us with sufficient petroleum and, more importantly, petroleum at very low prices.

It has not previously been commercially feasible to develop our oil shale resources or to extract all of the crude oil which exists in developed fields and in unproven reserves. Now we must become self-sufficient in energy, and in order to do so, we must be prepared to pay the attendant costs.

In order to increase our production of crude petroleum, new reservoirs must be discovered and drilled, often to deeper and more costly depths. Expensive new technology must be applied to existing wells to bring up more of the 60 percent of the crude oil which present drilling processes leave in the ground. Very large expenditures are also needed to produce oil from oil shale, a resource which alone could supply our needs for years to come.

Today, prices of crude oil in the world market are rising, and it is inevitable that they will come to rest at levels higher than we historically have enjoyed. Nevertheless, after a short-run adjustment period, the long-run price required to supply our needs should not be unreasonably high.

In the meantime, because of the abrupt nature of the present shortage, prices could temporarily exceed the price levels required to increase supply, and oil producers could reap unanticipated "windfall" profits.

EMERGENCY WINDFALL PROFITS TAX

I want to assure all Americans that there will be no windfall profits at their expense. When the Congress reconvenes in January, I will ask it to enact an emergency windfall profits tax. The specific details of this proposal will be provided today by the Treasury Department. Over the holidays, the Treasury Department will continue to work with Congressional staffs so that this proposal and related materials will be ready for consideration by the Congress after the holiday recess.

The emergency windfall profits tax I will propose would apply at rates graduated up to 85 percent on the sale by any domestic producer of crude oil at prices higher than the ceiling price of the Cost of Living Council on December 1.

This special emergency tax will prevent future windfalls to producers and will make up, in some degree, for those which may have already occurred.

At the same time, the tax is carefully designed to avoid completely depriving producers of a legitimate return on the major investments they will have to make in order to produce the additional supply we need. It would be self-defeating to tax away the oil producers' incentive and ability to help meet our energy shortage.

The emergency windfall profits tax must be a temporary tax. This is an essential part of my recommendation to the Congress. The tax is intended only to serve the immediate objective of preventing windfall profits to oil producers while other economic factors are at work to increase supply and eliminate the shortage in crude oil. As prices return to the long-run supply level and as the potential for windfall profits disappears, a continuation of the tax would result in higher prices for consumers, with no concomitant increase in oil supplies.

I am not today making any recommendation to the Congress for using revenues derived from the emergency windfall profits tax. That will naturally be a part of the Congress' deliberations. There are a number of possibilities for use of these revenues. One would be to place those revenues in an Energy Development Trust Fund which would act as a bank for the financing of a wide range of energy development and conservation projects which might not otherwise be feasible. Another possibility would be to refund all or part of the tax to the oil producer if he invests his profits in additional energy-producing efforts.

These and all other possibilities for increasing our energy production at a faster pace, as well as for minimizing any inequities resulting from the present shortage, are being given the most careful study. The steps which I am announcing today are not the entire answer to our energy needs, but they will contribute significantly to the overall solution.

We must be more creative in conserving our vital natural resources, and we must do more to develop those resources. As we take these steps, every American must be assured that others will not profit at his expense. My recommendation to the Congress for an emergency windfall profits tax is designed to give that assurance.