An excess profits tax is a federal levy on corporate earnings that exceed a defined threshold of “normal” return, typically imposed during wars or economic emergencies when outside events hand certain industries unusually large gains. The United States has no excess profits tax in effect in 2026, but Congress has enacted one four separate times since 1917, and new proposals surface whenever a particular industry appears to be profiting from a crisis.
The core idea has stayed the same across every version: identify what a company would have earned under ordinary conditions, and tax the difference between that baseline and its actual profits at an elevated rate. What has changed each time is the definition of “normal,” the rate structure, and whether the tax applies across the whole economy or targets a single industry.
When the United States Has Used One
Every federal excess profits tax has followed the same arc: enacted during a crisis, ramped up in stages, then repealed once the emergency passed.
World War I
Congress passed the first version on March 3, 1917, at an 8 percent rate tied to invested capital. After the U.S. entered the war, the War Revenue Act of October 1917 replaced it with a progressive schedule running from 20 percent to 60 percent, with the top rate hitting profits above a 33 percent return on invested capital. The tax continued at lower rates through 1921.
World War II
The World War II version eventually reached 95 percent on the highest tier of excess earnings. The government softened the impact with a postwar credit that refunded a portion of the tax after hostilities ended, rewarding companies that had cooperated with wartime production. The Revenue Act of 1945 repealed the tax effective January 1, 1946.
The Korean War
The Excess Profits Tax Act of 1950 added a 30 percent tax on profits above a company’s normal earnings baseline. Combined with the regular corporate income tax and surtax, the total effective rate reached 77 percent on excess earnings.1United States Senate Committee on Finance. Senate Report 81-2679 – Excess Profits Tax Act of 1950 For calendar-year 1950 the rate was phased in at half strength (15 percent), producing a combined ceiling of 57 percent that year. A statutory cap kept the combined corporate income and excess profits tax from exceeding 62 percent of a corporation’s total income. The tax expired December 31, 1953.
The 1980 Crude Oil Windfall Profit Tax
The most recent federal version targeted one commodity. The Crude Oil Windfall Profit Tax Act of 1980 imposed an excise tax on the difference between the selling price of a barrel of domestic crude and an adjusted base price meant to represent what the oil would have sold for without deregulation-driven spikes.2Congress.gov. Public Law 96-223 – Crude Oil Windfall Profit Tax Act of 1980 Gross revenue from 1980 through 1988 came to roughly $80 billion, far below the $393 billion originally projected. Net revenue after income tax deductions was about $38 billion. Congress repealed the tax in 1988 after oil prices had fallen far enough that collections were negligible and the administrative burden on both the IRS and the industry outweighed what remained.3Office of the Law Revision Counsel. 26 USC Chapter 45 – Repealed
How the Tax Actually Measures “Excess”
The 1950 Act offers the clearest picture of how these taxes work in practice, because it gave corporations two ways to establish their normal profit level. A company would elect whichever method produced a higher baseline, since a higher baseline meant a smaller tax bill. Nearly every modern proposal borrows from one or both of these approaches.
The Average Earnings Method
Under this approach, a corporation averaged its net income across the four calendar years from 1946 through 1949. The law let the company drop its worst-performing year entirely and average the remaining three, with any deficit year among those three counted as zero rather than as a negative.1United States Senate Committee on Finance. Senate Report 81-2679 – Excess Profits Tax Act of 1950 That treatment was generous to companies with one anomalous bad year in an otherwise profitable stretch.
The resulting average was then reduced by 15 percent to arrive at the excess profits credit. Only 85 percent of average base-period earnings counted, so the tax reached some income that would have been considered normal in absolute terms. The credit also adjusted upward by 12 percent of net capital additions made in 1948 and 1949, on the theory that new investments during the base period should produce higher earnings going forward.
The Invested Capital Method
Newer companies, or those with heavy capital investments but modest historical profits, could instead calculate their baseline as a percentage of total invested capital on a sliding scale:
- 12 percent return on the first $5 million of invested capital
- 10 percent return on the next $5 million
- 8 percent return on invested capital above $10 million
These percentages represented the normal return a company could earn on its capital before the excess profits tax took hold. Invested capital included equity, retained earnings, and 100 percent of borrowed capital, but interest payments on that borrowed capital could not be deducted when computing excess profits net income, which prevented double-counting the benefit of debt financing. Invested capital also included the tax basis of property contributed for stock, paid-in surplus, and accumulated earnings and profits.4Joint Committee on Taxation. Objections to Invested Capital Method as the Sole Standard Once a corporation filed using one method, federal regulations required it to keep using that method in subsequent years.
Relief Mechanisms Built Into the Law
Raw profit figures rarely told the whole story, and the 1950 Act built in several safeguards to keep the tax from punishing normal business volatility.
Corporations could carry current-year losses back to offset profits from prior years, potentially triggering refunds of excess profits tax already paid. Carryforward provisions worked in the opposite direction. Together they prevented a single high-earning year from generating an outsized bill for a company whose overall trajectory was uneven.
The 1950 Act also excluded both long-term and short-term capital gains from the excess profits calculation entirely, a broader exclusion than the World War II version, which had only excluded long-term gains.5Federal Reserve Bank of St. Louis. Summary of HR 9827 – The Excess Profits Tax Act of 1950 Income from retiring or repurchasing bonds outstanding for more than six months was also excluded. These carve-outs kept the tax focused on operating profits rather than discouraging asset sales or debt restructuring.
The 62 percent combined-tax ceiling was the most important safeguard. Without it, companies in capital-light industries with high historical earnings could have faced effective rates approaching confiscatory levels, undermining investment in exactly the sectors the wartime economy needed.
Arguments For and Against
Proponents argue that a well-designed excess profits tax falls only on economic rents, meaning profits above the normal competitive return. If the baseline is set correctly, the tax does not change whether an investment is worth making, because any project that was profitable before the tax remains profitable after it. Supporters also point out that these taxes generate revenue during emergencies precisely when governments need it most, and from the companies best positioned to pay.
Critics counter that the tax is harder to design well than advocates admit. Setting the normal baseline too low discourages investment; setting it too high collects little revenue. Temporary versions create incentives to accelerate spending during the tax period and defer revenue until after it expires, distorting business decisions. Companies with cross-border operations can shift reported profits to lower-tax jurisdictions, eroding the base. The administrative complexity is also real: the 1980 oil tax was repealed partly because compliance costs on both the IRS and the industry became difficult to justify once prices fell.
The track record is mixed. Every U.S. excess profits tax has generated less revenue than initially projected, and every one was repealed within a decade. But each also raised meaningful revenue during its peak years, and the distortions critics feared did not prevent wartime industrial mobilization from succeeding.
What’s Being Proposed Now
The most recent federal proposal is the Big Oil Windfall Profits Tax Act (H.R. 7960), introduced in March 2026, which would impose an excise tax on crude oil and rebate the revenue to individual taxpayers.6Congress.gov. HR 7960 – Big Oil Windfall Profits Tax Act The bill had not advanced out of committee as of mid-2026.
Other countries have moved faster. The United Kingdom’s Energy Profits Levy imposes a 38 percent tax on oil and gas company profits on top of the standard corporate rate. That levy runs through March 2030, after which the UK plans to replace it with a permanent mechanism that triggers an additional 35 percent tax whenever oil prices exceed $90 per barrel or gas prices exceed 90 pence per therm. The European Union took a different approach in 2022, imposing a temporary “solidarity contribution” on fossil fuel companies that raised roughly €28 billion over two years. The policy is no longer purely historical.