In a press briefing this week, President Biden accused oil companies of ‘war profiteering’ and warned of his intention to levy a windfall profits tax in hopes of increasing production and lowering prices. While Pres. Biden did not offer any specifics beyond promising to meet with lawmakers once Congress is back in session after the midterm elections, the threat came as yet another blow to the oil and natural gas industry that is both being demonized as the problem and looked to as the solution from the Biden White House.
We’ve seen the negative effects of a windfall profit tax during the Carter administration, where the tax served the exact opposite of its stated goals. In fact, a 2009 report by the Congressional Research Service found it did not achieve what its backers promised:
“From 1980 to 1988, the WPT may have reduced domestic oil production anywhere from 1.2 percent to 8.0 percent (320 to 1,269 million barrels). Dependence on imported oil grew from between 3 percent and 13 percent.” (emphasis added)
After the President’s announcement, experts across the aisle weighed in saying such tactics will do nothing to bring down oil prices and can only hurt consumers.
Economist Lawrence Summers, an alum of both the Clinton and Obama administrations, tweeted:
I’m not sure 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.
— Lawrence H. Summers (@LHSummers) November 1, 2022
He went on to say:
“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.”
Oil price expert Gas Buddy, Patrick De Haan, tweeted:
“Oil companies haven’t met commitment to invest but taxing them will help with that?”
“The Democrats are creating this illusion that oil companies are somehow suddenly the ones that can determine price when oil companies, again, are takers of whatever the market determines.” (emphasis added)
Ajay K. Mehrotra, professor of law and history at Northwestern University and a research professor at the American Bar Foundation wrote:
“While some have raised significant and badly needed government revenue during national crises, others have been more about political symbolism than economic effectiveness. …Such taxes might provide some political and moral solace now, but they rarely deliver on their promise of greater enduring tax equity, which ultimately doom their permanency.” (emphasis added)
While Boston University professor and associate director of the Institute for Sustainable Energy Cutler Cleveland told Newsweek that a windfall tax could add “upward pressure” on gas prices:
“There’s no plausible arrow you can draw from a windfall profits tax and lower gasoline prices,” he said, adding it could deter new investment in oil production and impact the U.S. relationship with the world oil market.
National Association of Manufacturers President and CEO Jay Timmons said:
“Raising taxes on American energy manufacturers is dangerous and destructive for the American people and the manufacturers who depend on access to reliable energy. It would disrupt domestic supply at a time of severe geopolitical uncertainty. Indeed, history has shown that this is a failed policy that could lead to more imports and even higher prices.”
American Fuel & Petrochemical Manufacturers President and CEO Chet Thompson stated:
“Once again, the President is more worried about political posturing before the midterms than he is about advancing energy policies that will actually deliver for the American people. A windfall profit tax might make for good soundbites, but as policy, it’s bad for consumers. It’s likely to disincentivize fuel production and make matters worse for drivers.” (emphasis added)
Neil Bradley, executive vice president and chief policy officer of the U.S. Chamber of Commerce, similarly stated:
“Experience proves that adding new taxes to punish companies actually hurts consumers. In this case, it will raise gasoline prices by removing the incentive to produce and refine more oil. To lower our energy costs we need a long-term energy strategy focused on boosting production, not finger-pointing.” (emphasis added)
And in a call Friday, Exxon Mobil CEO Darren Woods echoed these claims, warning of the effects a similar tax had in Europe.
“While these taxes may appear to be an attractive short-term solution to help consumers, history tells us they come with a significant long-term cost…They lose sight of the fact that there are only two proven ways to reduce price. The first is to increase supply, as we did with record high throughput at our North American refineries this quarter. The second, of course, is to reduce demand…Closer to home, there has been discussion in the U.S. about our industry returning some of our profits directly to the American people. In fact, that’s exactly what we’re doing in the form of our quarterly dividend.”
In fact, the only people who jumped to support Pres. Biden’s threat of a windfall profit tax were those who have previously called for shutting down U.S. oil and gas production – highlighting the true effect this misguided policy would have.
Longtime “Keep it in the Ground” activist Bill McKibben said the president’s statement was “better late than never,” and after voicing its support of Biden’s press briefing, climate activist group Sunrise Movement said:
“Big Oil is making record profits by raising prices for working people. We absolutely must tax them and give the money back to the victims of their greed. And while we’re at it, let’s sever our reliance on fossil fuels completely and invest in clean energy.”(emphasis added)
Activist group Greenpeace also tried to get in on the debunked blame game:
“When profits are high, oil companies keep all the profits. When profits are low, taxpayers have to bail them out. It is simply not fair. It’s time we held them accountable with a Windfall Profits Tax. #BlameBigOil”
Bottom Line: Despite the accusatory and false price-gouging and war-profiteering narrative, oil and gas companies do not control global prices: supply and demand does. Implementing an additional tax in the midst of a supply crunch is historically proven to be counterproductive to increasing domestic production and bringing prices down for consumers.
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