Excess profits tax

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An excess profits tax, EPT, 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.^[1]

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.^[2]