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An excess profits tax is a tax on returns or profits which exceed risk-adjusted normal returns. The concept of excess profit is very similar to that of economic rent. [1] Excess profit tax can be imposed on individuals or corporations [2] . Excess profit taxes are usually imposed on monopolist industries [3] .
Excess profits taxes have often, but not exclusively, been imposed during wartime or in response to an event which provides some with an extraordinary ability to earn windfall gains. Windfall taxes have often been proposed, and sometimes imposed, in order to discourage profiteering from temporary increases in resource prices, such as those for oil or gas. Wartime excess profits taxes, or War Profits Taxes, have been employed to reduce perverse incentives to engage in war profiteering. Excess profit taxes are used during times of difficulties in a country because it reduces income inequality and redistributes wealth [4] .
In history, excess profit taxes were imposed during times of war as war requires an excess amount of money. [5] However, many countries imposed an excess profits tax during COVID to fund extra healthcare workers and to implement protection, such as masks. Equally, from the onset of the pandemic to March 2021, the global fiscal response to mitigate the extensive health and economic impacts was unprecedented, totalling USD 16 trillion in 2020 (IMF, 2021). However, the pandemic's impact on businesses was uneven, with some sectors, notably information technology and pharmaceuticals, seeing significant profit surges and increased stock prices in the year following the outbreak [6] .
In Great Britain in World War I, the Treasury rejected proposals for a stiff capital levy, which the Labour Party wanted to use to weaken the capitalists. Instead, there was an excess profits tax, of 50 percent of profits above the normal prewar level; the rate was raised to 80 percent in 1917. [7] [8] Excise taxes were added on luxury imports such as automobiles, clocks and watches. There was no sales tax or value added tax at this time in Britain.
In 1863, the Confederate congress [9] and the state of Georgia [10] [11] [12] experimented with excess profits taxes, perhaps the first time it has happened in American history.
The first effective American excess profits tax was enacted in 1917, with rates graduated from 20 to 60 percent on the profits of all businesses in excess of prewar earnings but not less than 7 percent or more than 9 percent of invested capital. In 1918, a national law limited the tax to corporations and increased the rates. Concurrent with this 1918 tax, the federal government imposed, for the year 1918 only, an alternative tax, ranging up to 80 percent, with the taxpayer paying whichever was higher. In 1921, the excess profits tax was repealed despite powerful attempts to make it permanent. In 1933 and 1935, Congress enacted two mild excess profits taxes as supplements to a capital stock tax.
The crisis of World War II led Congress to pass four excess profits statutes between 1940 and 1943. The 1940 rates ranged from 25 to 50 percent and the 1941 ones from 35 to 60 percent. In 1942, a flat rate of 90 percent was adopted, with a postwar refund of 10 percent; in 1943 the rate was increased to 95 percent, with a 10 percent refund. Congress gave corporations two alternative excess profits tax credit choices: either 95 percent of average earnings for 1936–1939 or an invested capital credit, initially 8 percent of capital but later graduated from 5 to 8 percent. In 1945 Congress repealed the tax, effective 1 January 1946. The Korean War induced Congress to reimpose an excess profits tax, effective from 1 July 1950 to 31 December 1953. The tax rate was 30 percent of excess profits with the top corporate tax rate rising from 45% to 47%, a 70 percent ceiling for the combined corporation and excess profits taxes.[ citation needed ]
In 1991, some members of Congress sought unsuccessfully to pass an excess profits tax of 40 percent upon the larger oil companies as part of energy policy. Some social reformers have championed a peacetime use of the excess profits tax, but such proposals face strong opposition from businesses and some economists, who argue that it would create a disincentive to capital investment.
Hungary imposed an excess profits tax to address fiscal needs and economic imbalances exacerbated by global challenges such as the COVID-19 pandemic and rising inflation. Hungary recently imposed an excess profits tax aimed towards specific industries such as banks and airline industries [13] . As with most excess profit taxes it is temporary. The imposition of this tax is expected to bring in 800 billion HUF a year [14] .
A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer by a governmental organization in order to collectively fund government spending, public expenditures, or as a way to regulate and reduce negative externalities. Tax compliance refers to policy actions and individual behaviour aimed at ensuring that taxpayers are paying the right amount of tax at the right time and securing the correct tax allowances and tax relief. The first known taxation took place in Ancient Egypt around 3000–2800 BC. Taxes consist of direct or indirect taxes and may be paid in money or as its labor equivalent.
In Canada, taxation is a prerogative shared between the federal government and the various provincial and territorial legislatures.
The Revenue Act of 1861, formally cited as Act of August 5, 1861, Chap. XLV, 12 Stat. 292, included the first U.S. Federal income tax statute. The Act, motivated by the need to fund the Civil War, imposed an income tax to be "levied, collected, and paid, upon the annual income of every person residing in the United States, whether such income is derived from any kind of property, or from any profession, trade, employment, or vocation carried on in the United States or elsewhere, or from any other source whatever". The tax imposed was a flat tax, with a rate of 3% on incomes above $800. The Revenue Act of 1861 was signed into law by Abraham Lincoln.
The United States Revenue Act of 1921 was the first Republican tax reduction following their landslide victory in the 1920 federal elections. New Secretary of the Treasury Andrew Mellon argued that significant tax reduction was necessary in order to spur economic expansion and restore prosperity.
The United States federal government and most state governments impose an income tax. They are determined by applying a tax rate, which may increase as income increases, to taxable income, which is the total income less allowable deductions. Income is broadly defined. Individuals and corporations are directly taxable, and estates and trusts may be taxable on undistributed income. Partnerships are not taxed, but their partners are taxed on their shares of partnership income. Residents and citizens are taxed on worldwide income, while nonresidents are taxed only on income within the jurisdiction. Several types of credits reduce tax, and some types of credits may exceed tax before credits. Most business expenses are deductible. Individuals may deduct certain personal expenses, including home mortgage interest, state taxes, contributions to charity, and some other items. Some deductions are subject to limits, and an Alternative Minimum Tax (AMT) applies at the federal and some state levels.
Income tax in Australia is imposed by the federal government on the taxable income of individuals and corporations. State governments have not imposed income taxes since World War II. On individuals, income tax is levied at progressive rates, and at one of two rates for corporations. The income of partnerships and trusts is not taxed directly, but is taxed on its distribution to the partners or beneficiaries. Income tax is the most important source of revenue for government within the Australian taxation system. Income tax is collected on behalf of the federal government by the Australian Taxation Office.
A windfall tax is a higher tax rate on profits that ensue from a sudden windfall gain to a particular company or industry. There have been windfall taxes in various countries across the world, including Australia, Italy, and Mongolia. Following the 2021–2023 global energy crisis, policy specialists at the International Monetary Fund recommended that governments institute windfall profits taxes targeted at economic rents in the energy sector, excluding renewable energy to prevent hindering its further development.
The Revenue Act of 1928, formerly codified in part at 26 U.S.C. sec. 22(a), is a statute introduced as H.R. 1 and enacted by the 70th United States Congress in 1928 regarding tax policy.
The Russian Tax Code is the primary tax law for the Russian Federation. The Code was created, adopted and implemented in three stages.
BDO USA, P.C. is the 6th largest accounting and professional services firm in the United States. BDO USA, P.C. is the US member firm of BDO International, the 5th largest global accounting network with over $12.8 billion in revenue. In 2023, BDO USA, P.C. became the first large national accounting firm to convert from a traditional limited liability partnership, to an entirely employee owned corporation. Due to this conversion, all employees are eligible to gain an equity stake in the company. BDO stands for Binder, Dijker, and Otte, the original founders of the firm. The company is currently headquartered in downtown Chicago.
A gross receipts tax or gross excise tax is a tax on the total gross revenues of a company, regardless of their source. A gross receipts tax is often compared to a sales tax; the difference is that a gross receipts tax is levied upon the seller of goods or services, while a sales tax is nominally levied upon the buyer. This is compared to other taxes listed as separate line items on billings, are not directly included in the listed price of the item, and are not a factor in markup or profit on company sales. A gross receipts tax has a pyramid effect that increases the actual taxable percentage as it passes through the product or service lifecycle.
Windfall taxes have been applied on several occasions since 1997 by United Kingdom governments, in response to company profits that were considered to be excessive or unexpected.
Taxes in Switzerland are levied by the Swiss Confederation, the cantons and the municipalities.
Nemat Talaat Shafik, Baroness Shafik, commonly known as Minouche Shafik is an Egyptian-born American economist who has been serving as the 20th president of Columbia University since July 2023. She previously served as president and vice chancellor of the London School of Economics from 2017 to 2023. She also serves on the board of directors of the Bill & Melinda Gates Foundation.
A bank tax, or a bank levy, is a tax on banks which was discussed in the context of the financial crisis of 2007–08. The bank tax is levied on the capital at risk of financial institutions, excluding federally insured deposits, with the aim of discouraging banks from taking unnecessary risks. The bank tax is levied on a limited number of sophisticated taxpayers and is not especially difficult to understand. It can be used as a counterbalance to the various ways in which banks are currently subsidized by the tax system, such as the ability to subtract bad loan reserves, delay tax on interest received abroad, and buy other banks and use their losses to offset future income. In other words, the bank tax is a small reimbursement of taxpayer funds used to bail out major banks after the 2008 financial crisis, and it is carefully structured to target only certain institutions that are considered "too big to fail."
Taxation in Norway is levied by the central government, the county municipality and the municipality. In 2012 the total tax revenue was 42.2% of the gross domestic product (GDP). Many direct and indirect taxes exist. The most important taxes – in terms of revenue – are VAT, income tax in the petroleum sector, employers' social security contributions and tax on "ordinary income" for persons. Most direct taxes are collected by the Norwegian Tax Administration and most indirect taxes are collected by the Norwegian Customs and Excise Authorities.
Taxation in the Bahamas is collected by the Government of the Bahamas. The Bahamas are considered a tax haven given the lack of income tax, capital gains tax, inheritance tax or company tax. Government tax revenue is instead derived from consumption, property and import taxes as well as licence fees.
The Crude Oil Windfall Profit Tax Act of 1980 was enacted as part of a compromise between the Carter Administration and the Congress over the decontrol of crude oil prices. The Act was intended to recoup the revenue earned by oil producers as a result of the sharp increase in oil prices brought about by the OPEC oil embargo. According to the Congressional Research Service, the Act's title was a misnomer. "Despite its name, the crude oil windfall profit tax... was not a tax on profits. It was an excise tax... imposed on the difference between the market price of oil, which was technically referred to as the removal price, and a statutory 1979 base price that was adjusted quarterly for inflation and state severance taxes."
A worldwide surge in inflation began in mid-2021, with many countries seeing their highest inflation rates in decades. It has been attributed to various causes, including COVID-19 pandemic-related economic dislocation, supply chain disruptions, the fiscal and monetary stimuli provided in 2020 and 2021 by governments and central banks around the world in response to the pandemic, and price gouging. Recovery in demand from the COVID-19 recession had by 2020 led to significant supply shortages across many business and consumer economic sectors. The inflation rate in the United States and the eurozone peaked in the second half of 2022 and sharply declined in 2023 and into 2024. Despite its decline, significantly higher price levels across various goods and services relative to pre-pandemic levels persist, which some economists speculate is permanent.
