By BETH BLANKLEY | THE CENTER SQUARE
President Joe Biden’s pledge to impose a crude oil windfall profits tax on U.S. oil and natural gas companies if they don’t increase production is a failed Democratic policy, critics are pointing out.
In a speech one week before midterm elections, Biden said the companies have “a responsibility to act in the interest of their consumers, their community and their country, to invest in America by increasing production and refining capacity. If they don’t, they’re going to pay a higher tax on their excess profits and face other restrictions.”
His threat has been seen as an election ploy by those who point out only Congress can levy taxes.
Others simply say it won’t work, and they point to former Democratic President Jimmy Carter’s Crude Oil Windfall Profits Tax Act of 1980. Carter imposed a 70% excise tax on some oil sales in response to record-high inflation that saddled Americans with sky-high grocery prices, housing costs and long gas lines.
According to the Congressional Research Service, that tax reduced domestic oil production by 3% to 6% and increased foreign oil imports by 8% to 16%. It also cost the industry $38 billion in revenue and nearly 1.3 billion barrels of domestically produced oil, the American Petroleum Institute reports.
“High oil prices are a signal of strong demand and scarce supply, and they provide an incentive for increased production,” the Tax Foundation argued in 2008 in response to then president-elect Barack Obama initially vowing to reinstate it. “Taxes discourage production because they drive a wedge between the price paid by the consumer and received by the supplier. Windfall profits taxes also drive up oil imports because they discriminate against domestic oil producers to the benefit of the Saudis and the Venezuelans.”
One day after Biden’s speech, Larry Summers, former Clinton administration U.S. Treasury Secretary and Obama administration economic advisor, said he didn’t “understand the argument for a windfall profits tax on energy companies. If you reduce profitability, you will discourage investment which is the opposite of our objective.
“If it is a fairness argument, I don’t quite follow the logic since even with the windfalls Exxon has underperformed the overall market over the last 5 years.”
In March, U.S. Rep. Ro Khanna, a California Democrat, introduced the Big Oil Windfalls Profits Tax Act. It would impose an “excise tax on the windfall profits of crude oil on taxpayers who extracted and imported more than 300,000 barrels … of taxable crude oil (i.e., crude oil, crude oil condensates, and natural gasoline) in 2019, or who extracted and imported that amount in the current calendar quarter,” according to the bill summary.
Democratic California Gov. Gavin Newsom has proposed a windfall profit tax on refining profits – after California enacted a plan to ban the sale of internal combustion engine cars by 2035 and diesel trucks by 2040. As California has imposed more regulations, its oil production has declined by 70% since the 1980s; Californians now pay the highest gas prices in the U.S.
As of Nov. 1, Californians pay the highest average $5.54 for a gallon of regular gasoline; Texans pay the lowest average of $3.17. The national average is $3.75, according to AAA. Last November, Californians paid $4.06; Texans paid $3.05.
On Oct. 29, President Biden took credit for gas prices dropping by roughly $1.25 a gallon since the summer. He said, “that’s adding up to real savings for families. We’re continuing to take action to decrease prices at the pump,” in part by releasing a portion of the Strategic Petroleum Reserve.
In March, the White House announced another drawdown of 1 million barrels per day over six months. Equating to 180 million barrels – it was enough to meet nine days of U.S. oil demand or fewer than two days of total global oil demand.
A July Department of Treasury analysis estimated the drawdown would only lower gas prices by 13 to 33 cents a gallon.
The SPR currently holds the lowest volume since November 1984, according to the U.S. Energy Information Agency. As of Sept. 16, the SPR holds 427,158 million barrels compared to 644,818 million barrels the week of Sept. 20, 2019.
Daniel Turner, Power The Future’s Founder and Executive Director, said this is another attempt to “shift attention from [his administration’s] colossal failures.”
“Only in Joe Biden’s mind does it make sense to lower prices by raising taxes,” Turner said. “Raising taxes will do nothing to address our current supply imbalance or lower prices for consumers who are already suffering under Biden’s inflation tax.”
The U.S. Oil and Gas Association said of the president, “Chest-pounding against an entire industry sector and its millions of workers is a pretty weak closing argument for mid-terms that don’t appear to be going your way.”
One aspect that policymakers “fail to put it into the perspective,” Phil Flynn, a senior market analyst at the Price Futures Group, explains to Fox Business, is “how much these companies have to invest to bring supply to the marketplace” and the plethora of “government regulations that have restricted supply” causing prices to increase. They also don’t “take into account that most of these energy companies in the past were losing money just a few years ago.”
In 2020, over 100 U.S. oil and natural gas companies filed bankruptcies, with the most in Texas. Since then, and despite high inflationary costs, Texas has continued to lead the U.S. in oil and natural gas production and job growth.
“Those that were able to stay in business in 2020 lost tens of billions of dollars due to the sudden drop in oil prices,” Ed Longenecker, president of TIPRO, told The Center Square. “Setting a precedent that manipulates market principles when companies profit but allows them to lose when times are bleak ensures that corporations will limit their investments in the future and denies producers the opportunity to succeed in a free market system.”
Instead of repeating “the policy mistakes of the 1980s,” he said American leaders should “embrace pro-growth policies to encourage, not punish,” the oil and natural gas industry.
That’ll get the oil flow in’. Way to bring down those prices, Joe. What a moron
Dementia Joe has no idea how an economy, let alone a business operates.
Old man yelling at clouds.
Clueless.
Totally clueless.
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Do you think the corporations pay the tax? Nope, the consumers do. And, now fuel prices will go right back up again, and the cost of everything will be right behind it.
Tapioca brains is making no sense again.
Magnificent!! The sooner we’re paying $10 a gallon in the cities and $15 in the villages the better. This is the only way idiotic democratic voters will learn their lesson. Everything needs to triple if not quadruple in price too. Raise taxes, institute an income tax and finish taking the PFD. Maybe then these morons will finally wake up.
The unfortunate part about leftists is they will not learn their lesson until it burns them. And, it will burn the bejezzus out of us long before they realize how bad they made it for themselves.
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If only there was some way to have the children… errrrr… I mean find a way for leftists to suffer the consequences of their actions before everyone else does. Now, that I would support.
I totaly agree with your comment.
Incompetence? Dementia? The result is the same. Some of the staff should be embarrassed; some should be indicted. We should be watching for family and friends to be making quiet visits.
The POTUS doesn’t even know that the commodities market sets the price. And POTUS is the cause for the increase.
Biden and the democrats are gearing up to punish the electorate after their impending rejection in the election. Fill those tanks and gas cans now, juice up the heating oil tank, have propane delivered. After the election, it’s prices to the moon.
To beat the Big Oil gasoline price rip-off, buy an EV.
You first. Let me know if you can drive to homer nonstop with the heat on.
What state do you live in? Unless you were being sarcastic, …well never mind. When you have to pay the electric bill for your EV instead of juicing it up with subsidized electricity, then you will understand. Put your solar panels up and aim at the northern lights, nimrod. Electricity is produced by burning fuel in the real world. And thermodynamics suggest that converting and transporting this energy results in loss. The internal combustion engine is by far the least way of polluting the environment other than walking. Until we have a yet to be found solution, this is what we’ve got.
As Barack Obama said “Don’t underestimate Joe’s ability to f… things up.”
This is more about raising publicity, turning out the vote and associating Republicans with Big Corporations. Mission accomplished
Frank, while your statement is true about the intention of Biden’s logorrhea, the actual result is something different. You see Frank, Biden and the Democrats believe that people are generally stupid, so they tailor their message accordingly. Problem for Biden is that even stupid people like me see the idiocy of Biden’s reasoning. For example, if Republicans are so cozy with Big Corporations, how is it that Oil was so affordable under Trump and not so with Biden? Wouldn’t the opposite be true? Ill wait for your explanation.
I’ll further agree that Joe will succeed in turning out the vote. Every poll I’ve seen has Republican and Independent Likely Voters very excited about casting a ballot on Tuesday. Democrats own a disaster of an economy, Inflation soaring, Governmental censorship of free speech, 87,000 new I.R.S. Agents, Health Agencies that have been less than honest, (while their officials are in bed with big Pharma), Afghanistan pullout, Illegal’s flooding everywhere, and Biden is doing his best to get us into a nuclear war.
Yeah, lets tax Oil Companies, that will sure fix things.
Oh wait, it’s the abortion thing, right? Sure, Joe will pull this out yet.
Don’t waste your time with this guy. Too many bowls of subsidized pot.
Big Oil took immediate advantage of Brandon’s anti-oil policies by cutting production, knowing they could then blame it all on Brandon. They also knew full well that they would make massive profits from the oil they continued to produce. Their profit numbers speak for themselves.
Big oil does not set the price of oil the Commodities market does that.
Roger that. Like pork bellies, butter and everything. Makes you wonder how much it is going to cost us taxpayers for the temporary reduction in gas prices in time for the election. I am secure in predicting over 7 dollars a gallon post election, if not more, regardless of outcome. Any takers?
Cmon Biden, do not say the oil companies need to listen to the consumers when you do not listen to the Americans when they say you need to leave. If you can not see the BS in this regime you are the problem.
Biden’s rants have to be a distraction for something else they don’t want us to see. He’s nothing more than a useful idiot controlled by the sinister criminals that have hijacked our government. Otherwise he would have been removed in a straight jacket 50 years ago.
He was a better actor while playing the banjo in the movie “Deliverance”.
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