Over the past 13 years, the price of crude oil has generally been increasing and volatile. High crude oil prices, which have led to high gasoline prices, have contributed to a weakening of the U.S. economy. Further, high gasoline prices put increased pressure on household budgets, during a time when households continue to struggle with persistently high levels of unemployment and a flagging housing market. While much of the American economy has suffered as a result of high oil prices, those prices generated record profit levels for the oil industry. Five companies—ExxonMobil, Royal Dutch Shell, BP, Chevron, and ConocoPhillips—earned a predominant share of those profits. Record oil and gas industry profits have raised the concern of many public policy experts and federal policymakers, including many in Congress, who have questioned whether these profits were justified, or whether they constituted a "windfall" to the industry: an excessive, unearned, and unfair gain. Important factors in considering this issue might include the ultimate source, or reason, for the price increases, and what the industry's role was in generating them, i.e., whether it was through the direct result of the industry's efforts, in terms of employing its resources, decision-making, or risk-taking, or whether it was the result of fortuitous factors and events. Also important to the public policy question might be the actual size of the profits and what the industry did with them. If an industry invests profits into increased production capacity, the increased supply may ultimately cause prices to fall and the profits to dissipate. As the analysis in this report shows, the experience between 2003 and the first quarter of 2011 suggests that investments in oil exploration and development have not managed to keep company oil output from declining from the peak attained in 2006. Numerous bills have been introduced in the Congress over this period to tax the oil and gas industry's record profits. Broadly, there are two ways that tax policy can be used to increase taxes on oil and gas profits. First, Congress could scale back or eliminate various tax incentives and preferences currently available to the industry. Second, Congress could directly increase taxes on the industry, through some form of an excess profits tax or windfall profits tax. During the 1 st session of the 112 th Congress, the Senate considered a measure that would have eliminated various tax preferences for major integrated oil companies. A motion to proceed to consideration of the Close Big Oil Tax Loopholes Act ( S. 940 ) was rejected in May 2011. S. 940 sought to eliminate industry-specific incentives, such as the ability to partially expense intangible drilling costs (IDCs). Further, the legislation would have prevented major integrated oil companies from taking advantage of tax incentives available to firms operating in other industries, such as the domestic production activity deduction (the § 199 deduction). High crude oil prices and the associated profits may lead policymakers to look at the tax burden on the oil and gas industry broadly, shifting the focus beyond the major integrated oil companies. Since the inception of the federal income tax system in the early 20 th Century, the oil and gas industry has accrued sizable benefits (in excess of $190 billion, according to one estimate). While some of the traditional tax incentives, notably percentage depletion for integrated producers, have been significantly pared back over the years, some have argued that no tax incentives should be available to the industry at a time of high profits. As was noted above, a second option for increasing taxes on oil and gas industry profits is to take a more direct approach. Congress could choose to impose a windfall or "excess" profits tax-a supplemental or additional tax on the oil industry-one based on windfall or excess profits in addition to other income or other taxes that the industry might pay. While some might envision this as a totally new type of tax on windfall gains, an alternative would be to model it after the windfall profits tax on oil that existed from 1980 to 1988. A windfall profit tax would be in addition to the current tax on corporate and business income that applies to the oil and gas industry, whose profits are taxed at rates as high as 35%. This report contains information useful in evaluating the windfall profits tax policy option. The first section analyzes the major oil companies profit performance, particularly from 2003 to 2010, both in terms of earnings and how those earnings have been used. The second section is a brief legislative history of windfall profit tax proposals and legislation in the 109 th through 112 th Congresses. The third section analyzes the concept of a windfall profits tax, including experiences with the tax of the 1980s, its viability, and potential role in the tax system and economy. During the 2000s, oil prices have been volatile, and generally rising. Rising oil prices have been associated with increased revenues and net incomes amongst major integrated oil producers. While prices, revenues, and incomes have risen, production levels have remained relatively constant. The following sections review trends in oil prices as well as the revenues, income, and production levels of major integrated oil companies. This information, combined with information on the use of profits, is helpful when evaluating whether the industry has benefitted from windfall profits in the face of high oil prices. Since the late 1990s, crude oil prices have been volatile, but also trending upward (see Figure 1 ). During the fall/winter of 1998/1999, the spot market price of West Texas Intermediate (WTI) crude oil was between $11 and $12 per barrel. By July 2003, it had risen to $30.75 per barrel. Five years later, in July 2008, the spot market price of WTI was $133.37, an increase of 334% in five years, and more than 1,000% over the 1998 price. In June 2008, the spot market price reached the all-time high of $147 per barrel. With the onset of the effects of the financial crisis and the recession, as well as a reaction to higher consumer gasoline prices, the price of WTI fell to $39 per barrel in February 2009. By the end of 2009 the price of WTI was almost $75 per barrel. During 2010, the price of WTI ranged between $73 and $90 per barrel. Unrest in the Middle East and North Africa brought the price of WTI back over $100 per barrel in April 2011. This 13-year period of generally increasing oil prices, punctuated by a major decline in 2008/2009, began after a poor year for profitability in the oil industry, 1998, and included another poor year, 2002, along with record profit years. The oil price increases that began in late 2003 seemed to be largely unanticipated by the industry. They have since been attributed primarily to (1) a growing world economy, particularly the emerging economies of China and India; (2) declining excess production capacity, particularly within OPEC (Organization of the Petroleum Exporting Countries) producers; and (3) a number of financial factors, including futures market speculation, exchange rate, and inflation hedges. As the price of oil rose, company revenues, net incomes, and income taxes paid also rose, with ExxonMobil eventually becoming the most profitable corporation in the history of American industry. The oil industry is composed of thousands of companies, ranging from the major integrated oil companies with operations around the globe, to independent producers (which range in size from small to very large), to relatively small oil service and equipment companies. The increase in oil prices over the past 13 years—particularly over the past five years—has enhanced the profitability of virtually all sectors of the industry, directly or indirectly. This report highlights the financial performance of the industry's largest players, the major integrated oil companies. While the oil and gas industry's high profitability has been widespread, it has also been concentrated among the industry's largest firms. Financial data show that the performance of the industry is dominated by the five largest firms: ExxonMobil, Royal Dutch Shell, BP, Chevron, and ConocoPhillips. Generally, the net income of these five firms constituted 90% of the total net income of the nine firms considered to be integrated oil companies, at various times over the period, operating in the United States. With the exception of 2009, revenues of the five major firms have increased annually since 2003 (see Table 1 ). Total revenue is measured as price times the quantity of goods and services sold. In the case of the five major oil companies over this period, the increase in revenues was largely price-driven, with quantities of oil produced largely stagnant. For example, in 2003, ExxonMobil produced 2.59 million barrels per day (b/d) of crude oil, and in 2010, ExxonMobil produced 2.42 million b/d, a decrease of about 3%. In general, the five major oil firms did not produce more crude oil and petroleum products in response to the incentive of higher prices. As illustrated in Table 2 , production of crude oil during the period was relatively stable. Only Chevron and BP produced more crude over this period, and, for the five firms as a whole, output declined by 4.5% from 2003-2010. Revenue data for the first half of 2011 reflects the sharp increases in the price of oil observed during the first four months of the year, with the price of WTI reaching $112 per barrel in April. For the first quarter of 2011, the five firms earned total revenues of $422 billion and net incomes of $32.3 billion. These values could result in yearly values approaching the results of 2008, assuming the price of oil remains near its peak. In recent years, trends in net income have also tended to follow trends in revenues and crude oil prices (see Table 3 ).