(The Center Square) – President Joe Biden’s promise to impose a crude oil windfall tax on U.S. oil and gas companies if they don’t increase production to “lower gas prices” is another failed democratic policy, critics, including a former treasury secretary, argue.
In a speech a week before the midterm elections, Biden said companies have a “responsibility to act in the interest of their consumers, their community and their country, to invest in America by increasing production capacity and refining. If they don’t, they’re going to pay higher tax on their excess profits and face other restrictions.”
His threat was seen as an election ploy by those who stress that only Congress can levy taxes.
Others simply say it won’t work, pointing to former Democratic President Jimmy Carter’s 1980 Crude Oil Windfall Profits Tax Act. grocery prices, housing costs and long gas lines.
According to the Congressional Research Service, the 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 locally produced oil, reports the American Petroleum Institute.
“High oil prices are a sign of strong demand and scarce supply, and they provide an incentive to increase production,” the Tax Foundation said. argued in 2008 in response to then-President-elect Barack Obama, who had originally pledged to restore it. “Taxes discourage production because they create a gap between the price paid by the consumer and that received by the supplier. Windfall taxes also increase oil imports because they discriminate against domestic oil producers in favor of Saudis and Venezuelans.
A day after Biden’s speech, Larry Summers, former U.S. Treasury Secretary in the Clinton administration and economic adviser to the Obama administration, said he did not “understand the argument for a windfall tax on energy companies. If you reduce profitability, you will discourage investment, which is the opposite of our objective.
“If this is an equity argument, I don’t quite follow the logic since even with the bargains, Exxon has underperformed the broader market for the past 5 years.”
In March, U.S. Representative Ro Khanna, a California Democrat, introduced the Big Oil Models Profits Tax Act. It would impose a “crude oil windfall profits excise tax on taxpayers who extracted and imported more than 300,000 barrels … of taxable crude oil (i.e. crude oil, crude oil condensate and natural gasoline) in 2019, or who mined and imported that amount in the current calendar quarter,” according to the invoice summary.
California Democratic Governor Gavin Newsom has proposed a windfall tax on refining profits – after California passed a plan to ban the sale of internal combustion engine cars by 2035 and trucks diesel by 2040. While California has imposed more regulations, its oil production has fallen 70% since the 1980s; Californians now pay the highest gas prices in the United States
Since Nov. 1, Californians are paying the highest average of $5.54 for a gallon of regular gas; Texans pay the lowest average of $3.17. The national average is $3.75, according to AAA. Last November, Californians paid $4.06; The Texans paid $3.05.
On October 29, President Biden took the credit for gasoline prices down about $1.25 a gallon since the summer. He said that “this represents real savings for families. We continue to take steps to lower prices at the pump,” in part by releasing some of the Strategic Petroleum Reserve.
In March, the White House announcement another draw of 1 million barrels per day for six months. Equivalent to 180 million barrels – that was enough to meet nine days of US oil demand or less than two days of total world oil demand.
A Treasury Department analysis from July valued the draw would only lower gasoline prices by 13 to 33 cents per gallon.
The SPR currently holds the lowest volume since November 1984, according to the United States Energy Information Agency. As of September 16, the SPR held 427,158 million barrels compared to 644,818 million barrels the week of September 20, 2019.
Biden’s claims, according to Daniel Turner, founder and executive director of Power The Future, are another attempt to “distract from [his administration’s] colossal failures.”
“It’s only in Joe Biden’s mind that it makes sense to lower prices by raising taxes,” he said. “Raising taxes will do nothing to address our current supply imbalance or lower prices for consumers who are already suffering from Biden’s inflation tax.”
The American Oil and Gas Association said of the president, “Fighting an entire industry sector and its millions of workers is a pretty weak closing argument for midterms that don’t seem to go your way.”
Something that policymakers “fail to put into perspective,” said Phil Flynn, senior market analyst at Price Futures Group, Explain to Fox Business, is “how much these companies have to invest to bring supply to market” and the plethora of “government regulations that have restricted supply” driving up prices. 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, more than 100 American oil and gas companies went bankrupt, with most in Texas. Since then, and despite high inflationary costs, Texas has continued to conduct in the United States in oil and natural gas production and job growth.
“Those who were able to stay in business in 2020 lost tens of billions of dollars due to the sudden drop in oil prices,” Ed Longenecker, TIPRO president, told The Center Square. “Creating a precedent that manipulates market principles when companies profit but allows them to lose when times are dark guarantees that companies will limit their investments in the future and deprive producers of the opportunity to succeed in a free market system. .”
Instead of repeating “the policy mistakes of the 1980s,” he said U.S. leaders should “enact pro-growth policies to encourage, not punish,” the oil and natural gas industry.