- Paul Constant is a writer at Civic Ventures and also “Pitchfork Economics“podcast.
- He spoke with California Democratic Congressman Ro Khanna about the oil windfall tax.
- Proposed taxes on big oil producers would go toward tax refund checks for lower-middle-class Americans.
While you might expect the economy as a whole to be affected by rising inflation, businesses reported some Biggest profit on record In 2021, when Inflation hits highest level in nearly 40 years.
Our understanding of how economics works suggests that if companies pay more for materials as global supply chains are ravaged by the pandemic, they should be less profitable.Instead, businesses are using inflation fears as Raise prices and further increase profit cover.
According to an analysis by the Economic Policy Institute, nearly 54% Some of the recent inflationary price hikes Americans have paid have gone to corporate profits. People are already taking notice: in February, Poll from Data for Progress It showed that 63% of respondents concluded that “large companies are using the pandemic to unfairly raise prices and increase profits for consumers.”
leaders like Senator Elizabeth Warren And Congressman Ro Khanna, D-Calif., singled out the oil and gas industry as a particularly egregious example of corporate price gouging. Congressman Khanna recently joined the “Pitchfork Economics” Podcast discuss Huge oil profits taxa piece of legislation he helped introduce in March that would address the gap between gas prices and gas company profits.
Nationally, Americans Pay record prices at petrol stations, while oil majors are grabbing profits. Although Exxon Mobil lost $3.4 billion in the first quarter of this year after it ceased operations in Russia due to the Russian invasion of Ukraine, The company’s first-quarter profit still doubled from last year, reaching $5.5 billion.Chevron claimed losses in its most recent quarterly report Russian Invasion Has Less Economic Impact Compared to its peers, it is making its highest profits in at least a decade.
Under the Big Oil Windfall Profits Tax, big oil companies (oil companies that import or produce more than 300,000 barrels of oil per day) will pay a 50% tax per barrel of oil on the difference between current selling prices and the pre-pandemic average price of oil – essentially Their markup is taxed. By averaging the price of a barrel between 2015 and 2019, every cent above $66 a barrel will be taxed. (As of this writing, oil prices are $110 per barrel.)
The 300,000-barrel threshold directly targets the largest multinational oil producers – ExxonMobil, BP and a handful of others billions of dollars this yearr – Exempts the tax for small domestic oil companies that produce about 70% of the country’s oil.
The revenue collected from the Big Oil Windfall Tax will then be returned directly to lower-middle-class Americans in the form of quarterly tax refund checks. Khanna estimates that if major oil companies sold their products for $100 a barrel, every American household earning less than $150,000 would receive the equivalent of a quarterly check of $300.
“There are a lot of middle-class and working-class people who are hurting, and for them, a few hundred dollars a month can make a big difference,” Khanna said.
There is also precedent for such taxes on major oil companies. In April 1980, the Carter Administration promulgated the Crude Oil Profits Taxwhich levied an excise tax on domestic oil production and earned $80 billion in gross revenue before it was repealed in 1988.
Legislation co-sponsored by Khanna differs from the crude oil windfall tax in several important ways. While revenue from the new proposed tax would provide tax refund checks, the 1980 legislation allocated revenue to tax cuts, low-income assistance programs, and transportation programs.
Perhaps most importantly, the new legislation doesn’t just apply to domestically produced oil, like the 1980 tax, which some critics say penalizes domestic oil producers and enriches international oil companies.this Congressional Research Service A 2011 finding that programs directly tied to the profits of the world’s largest companies, such as Khanna’s, would create “less economic distortions” than a 1980 tax that “reduced domestic oil supplies”.
New oil windfall tax law been criticized Organized by the usual anti-tax groups, but likely to be popular with the average American, a poll found 87% of likely voters back “Crack down on oil companies for price gouging. ”
The distaste for Big Oil makes sense for Khanna. “I think what’s distasteful here is that Big Oil is making money and everyone else in America is willing to sacrifice to stand with the Ukrainians,” he said.
Americans are willing to shoulder the burden when everyone pays a higher price for supporting Ukraine’s freedom. But when big oil companies overcompensated their losses by making huge profits, at the expense of the rest of the country paying more at gas stations, populist solutions, like the Big Oil Windfall Tax, gained traction.