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MARY FRANCES DE LA PAVA. CHIEF CLERK
WASHINGTON.
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20510
August 30, 1979
Mr. Edwin F. Scheetz, Jr.
President
Moore, Leonard & Lynch
525 William Penn Place
Pittsburgh, PA 15219
.
Dear Ted:
Many thanks for sending your views on the windfall profits tax
proposed by President Carter. It is not true that I perceive profits as
sinister or that I consider the oil companies to be the villians of the
nation's energy problems.
First, I strongly believe that profits are the motivating factor
in our free enterprise economy. However, the world market price for oil
currently is not being set based on the marginal cost of production,
as the free market assumes, but instead is fixed by a producer cartel
that is exercising monopoly powers. Consequently, as price controls on
domestic crude oil are removed, U.S. firms will receive revenues based
on this monopoly established price, rather than a free market price.
It is my view that in order to minimize the impact of the price setting
practices of the OPEC nations, i.e., to establish a free energy market,
we must develop a broad domestic energy base. Through a windfall profits
tax, which I am sure you know is actually an excise tax, a portion of the
increased revenues will be recovered for these purposes.
Second, whatever the role of the oil companies in causing or exacerbating our energy shortages, I believe that the most important cause of
the recent gasoline lines was the inept bureaucratic attempts of the
Department of Energy to allocate oil supplies. This fiasco reconfirms
my view that the market is generally far superior to the government in
allocating scarce resources efficiently. These government policies which
have interfered with market operations have encouraged the consumption
of energy and discouraged the development of alternatives. Removing
price controls on domestic crude oil will allow the price mechanism to
allocate energy resources in a manner that reflects their true economic
cost.
Edwin F. Scheetz, Jr.
Page 2
August 30, 1979
I recognize that the proposed windfall profits tax could eliminate
some incentives for domestic oil producers to expand production and I
intend to work with my colleagues on the Senate Finance Committee to
structure a tax that will encourage the development of alternate energy
sources while at the same time minimizing the negative impact on oil
production.
I hope this information is helpful to you in understanding my position
I would be interested in any comments you may have on the details of the
windfall profits tax or energy development legislation currently being
considered by the Congress.
With best wishes,
Sincerely,
John Heinz
United States Senate
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