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November 14, 2022

President Biden Floats Windfall Profits Tax On Energy

In remarks last week, President Joe Biden threatened to increase taxes on U.S. oil and gas companies. Specifically, as The Wall Street Journal reported, the president said he would work with members of Congress to pass legislation to ensure oil companies “pay a higher tax on their excess profits and face other restrictions” if those companies do not take action to help consumers.

While the White House did not offer specifics of such a plan, The Journal noted that a group of progressive Democrats introduced legislation earlier this year that would impose a per-barrel tax equivalent to 50 percent of the difference between the current price of crude oil and the average price between 2015 and 2019.

Business groups reacted negatively to the proposal since raising taxes would be likely to erode their access to a reliable supply of affordable energy, disrupt domestic supply at a time of severe geopolitical uncertainty, and lead to higher prices.

Indeed, the U.S. government put a windfall profits tax into place in the late 1970s and early 1980s and it resulted in lower domestic production and higher reliance on imports. Specifically, according to the Congressional Research Service, that levy reduced domestic oil production by up to eight percent and increased reliance on foreign oil by up to 13 percent. Later in the week, the president promised to meet directly with the energy companies.

Even if the White House puts forward a specific plan, it is unlikely to go anywhere in Congress since it would need the support of 60 senators and Republicans are likely to strongly oppose the measure.

Because raising taxes on energy producers will not lower consumer prices, policymakers should instead consider policies that will help strained businesses and families, including:

  • Streamlining regulations that slow access to the United States’ rich supply of energy, minerals, and other natural resources;
  • Expediting the regulatory and legal processes involved in developing clean energy technologies and promoting energy and energy technology trade;
  • Fixing the broken permitting process for energy production and infrastructure projects;
  • Promoting access to federal lands and waters for environmentally responsible mineral, energy and resource exploration;
  • Supporting measures to enhance development and deployment of energy-efficient technologies;
  • Backing domestic critical mineral extraction, recycling and processing; and
  • Expanding the useful life of critical mineral components using federal programs and funds.

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