Democrats File New Tax On Alleged ‘Windfall Profits’ By Big Oil

Following one of the most volatile weeks since 2020, the price for crude oil on the global market finished down for the week as markets closed on Friday. The international Brent index finished the week at $112.70, off by $5.41 from its close on March 4. The intervening week saw Brent rise as high as $131 per barrel on March 8, as President Joe Biden announced the U.S. ban on Russian oil imports, and as low as $107.80 on March 10 as measures to mitigate the impacts of that sanction came to light.

The rise of gasoline prices at the pump was also showing signs of slowing in response to the calming oil markets. AAA reports that the U.S. average price for regular stands at $4.326 as of March 12, down by a modest 1.05 cents overnight. American drivers could see local gas prices mitigate further in the coming days as the oil price shock subsides, at least for now.

Also this week, the Biden administration, after a year of calling for more oil production from anywhere but the U.S., finally got around to asking the domestic industry to do the same. Energy Secretary Jennifer Granholm became the first high Biden official to actually call on the domestic oil and gas industry to respond to the current oil supply crisis by producing more oil.

Granholm made the following remarks during an appearance at the annual CERA Week conference in Houston: “We are in an emergency, and we have to responsibly increase short-term supply where we can right now to stabilize the market and minimize harm to American families,” she said Wednesday. “I hope your investors are saying these words to you as well: In this moment of crisis, we need more supply … right now, we need oil and gas production to rise to meet current demand.”

Here’s what Granholm didn’t say, though: She made no commitment on the part of this administration to take actions to help stimulate the domestic oil industry in the same myriad ways Biden and congressional Democrats have been trying to stimulate the wind, solar and EV industries they hope to replace oil and gas.

Nor did Granholm make any commitment on behalf of the administration to stop stalling and denying pipeline permits at FERC or to re-start the suspended federal leasing program. This seems to defy logic: If the government says we are in “an emergency” and need to “increase short-term supply,” then why wouldn’t the government do what it can to stimulate the industry whose job it is to supply oil and gas?

Congressional Democrats aren’t helping anything. At the same time Granholm was speaking at CERA Week, Senator Sheldon Whitehouse (D-RI) and Rep. Ro Khanna (D-CA) introduced a bill they say is designed to “punish” “Big Oil” for “raking in record profits while working families are struggling to afford gas at the pump. What we are seeing right now is a prime example of corporate greed and companies profiting off an international crisis,” according to Khanna, quoted by the New Republic.

The bill would levy a 50 percent tax on “profits” oil companies earn above the price of $66 per barrel, which the authors say was the average oil price during 2015 through 2019. Why those years were chosen is anyone’s guess. Why not just throw a dart blindfolded at an EIA listing of average oil prices since 2002, and use that as the index? It would be an equally valid a method.

Whitehouse and Khanna then propose to send half the tax collections back to consumers in the form of a rebate, which Whitehouse told reporters amount to a $240 payout to single tax filers and $360 for joint filers next year. That’s if, Whitehouse claims, the price for oil “remains at $120 per barrel.”

So, on the one hand we have a Democratic presidential administration urging oil and gas producers to risk millions more capital dollars to produce more oil, and on the other hand Democrats in congress pushing a massive new tax that would destroy the incentive to to make those new investments and assume those risks.

It is instructive to note that neither Whitehouse nor Khanna offered any sort of rebate or subsidy proposal to compensate Big Oil companies for the catastrophic losses they suffered during 2020 and into 2021. Hundreds of U.S. oil and gas companies went bankrupt during that time due to the COVID-19 pandemic and the response of the federal and state governments to it.

It is also fair to note that this proposal by Whitehouse and Khanna is basically structured along the same lines as the original Windfall Profits Tax Act that Jimmy Carter signed into law in 1980. That law was so poorly conceived that it quit generating any tax income to the government after just a few years and congress actually repealed it just 8 years later in 1988.

During the 42 years since that first law was passed, congressional Democrats have made a habit of proposing new ‘windfall profits’ taxes pretty much every time oil prices on the global market have cause U.S. gasoline prices to spike. None of those efforts have had a shred of a chance of being passed into law, and this one doesn’t, either. But they are worth noting, if only for the cynical brand of political opportunism they represent.

This proposal by Whitehouse and Khanna only serves to obscure the real issues and needs surrounding U.S. energy policy, and distorts the public debate our society desperately needs to be having. It is, in a word, unhelpful.