StanCollender'sCapitalGainsandGames Washington, Wall Street and Everything in Between

Not Another Windfall Profits Tax!!!

08 Oct 2009
Posted by Pete Davis

This morning at a closed House Democratic caucus, a proposal to impose a windfall profits tax on health insurers to help pay for health reform gained support.  No details were presented, but the politics were right as numerous members emerged to endorse the idea.  Some members said as much as $100 b. could be raised over ten years.  It's doubtful the Senate could pass it, but this is definitely a shot across the bow of health insurers.

The last windfall profits tax on oil, actually an excise tax, was enacted on April 2, 1980 as price controls were phased out.  It was repealed on August 23, 1988.  It was projected to raise $393 b. based upon oil price assumptions that proved so incorrect that it only actually raised $80 b.  On a net basis, after taking into account income tax deductions and lower receipts from the sale of oil from federal properties, the windfall profits tax only raised $38 b.  To say the windfall profits tax failed to achieve its objectives is an understatement.  This Congressional Research Service report provides the evidence.

What profits?

I don't understand - where are the "windfall profits" for health insurers?

In health care plans, the average profit margin is 3.3%. See:

Cigna is "highest" with 9.6%, but compare with Apple at 15%, or IBM at 13%.

Re: Some members said as much

Re: Some members said as much as $100 b. could be raised over ten years.

Health insurance industry profits in 2007 (the latest year available) were about $13 billion* according to (that's on premium revenues of $775 billion according to HHS, by the way, although it may include investment income/loss). I'd like to see the "analysis" behind this supposed potential $100 billion -- what amount of assumed profits, what amount of "windfall" profits on what assumed revenues with what tax rate, even assuming no adverse dynamic effects.

* $13 billion is for the top 10 insurers. I assume that it's a close approximation of total industry profits.


There is a big difference between book profits for financial reporting and federal taxable income, particularly for financial institutions.  It gets very complicated writing tax law on how much reserves an insurance company can set aside for future claims.  As with the windfall profits tax on oil, which was really an excise tax on the price of oil above certain threshold amounts because defining oil profits wasn't that feasible either, a windfall profits tax on health insurers would be political punishment, not sensible economic policy.

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