By Akayla Gardner, Jennifer A. Dlouhy and Kevin Crowley | Bloomberg
President Joe Biden said he’d seek to impose higher taxes on oil companies that record “windfall” profits without reinvesting in production, with US gasoline prices still high a week ahead of midterm elections.
“The oil industry has not met its commitment to invest in America and support the American people,” Biden said Monday. He called the industry’s profits “a windfall of war.”
Companies that don’t show they’re reinvesting in production, he said, are “going to pay a higher tax on their excess profits and face other restrictions.” He added that he would “work with Congress to look at these options that are available to us.”
In his brief speech, Biden set out a promise that will be all but impossible to deliver.
Many Democrats have unsuccessfully sought a so-called windfall profit tax for more than a decade. No such proposal is likely to pass the current Senate, evenly divided between Democrats and Republicans, and unless Biden’s party makes unexpected gains in next week’s elections, the GOP and centrist Democrats will be able to block it for the foreseeable future.
But the idea of imposing a tax on oil companies’ profits has garnered renewed attention among progressives in Congress after gasoline prices spiked to more than $5 a gallon this summer. Biden has repeatedly scolded Big Oil for the combination of high pump prices and record profits in the months leading up to the elections.
Sen. Ron Wyden, an Oregon Democrat and Biden ally who chairs the tax-writing Finance Committee, has floated a proposal that would establish a new federal surtax on oil companies that record a profit margin better than 10%.
Gov. Gavin Newsom also has proposed a tax on oil company profits, with revenue used to provide rebates and offset higher energy costs for consumers.
The S&P 500 Energy Index dropped after news of Biden’s planned windfall tax before regaining to close up 0.6%. The index had traded up 2.1% earlier in the day. ConocoPhillips, Pioneer Natural Resources Co., both domestically-focused oil producers, and Valero Energy Corp., a refiner, were the worst performers.
Administration officials have weighed other steps to encourage oil refiners to keep more gasoline and diesel inside the US, instead of exporting it, as domestic stockpiles shrink ahead of winter. New restrictions on the export of finished fuels, including diesel, could be imposed administratively.
Oil industry trade groups have argued a windfall tax would penalize domestic energy and fuel production right when the US should be encouraging more of both.
“The history of a windfall profits tax is clear: reduced domestic production and increased dependence on foreign suppliers,” said Anne Bradbury, head of the American Exploration and Production Council, which represents oil producers.
Chet Thompson, head of the American Fuel and Petrochemical Manufacturers association, cast the move as a political stunt.
“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,” Thompson said by email. “A windfall profit tax might make for good sound bites, but as policy, it’s bad for consumers. It’s likely to disincentivize fuel production and make matters worse for drivers.”
The Biden proposal resembles measures that politicians across Europe, and in some other countries such as India, are imposing on companies reaping record profits from fossil fuels and power generation. Mostly, those governments are using cash raised from windfall taxes to help subsidize soaring energy bills for households.
