The Biden administration is considering a proposal to tax oil and gas windfall profits to provide a gas subsidy for American consumers struggling with high energy prices, said Bharat Ramamurti, deputy director of the National Economic Council at a panel sponsored by the Roosevelt Institute think tank on June 2.
The news follows a similar move in the U.K. by Chancellor Rishi Sunak on May 26, to impose a 25 percent windfall tax on North Sea energy producers to provide a 15 billion pound ($18.9 billion) energy fund subsidy for Britons paying for soaring fuel costs.
The White House has been examining proposals from Congress that would hike taxes on energy producers in order to provide a subsidy or tax rebate to households.
“We are very much open to any proposal that would provide relief to consumers at the pump,” said Ramamurti.
“There are a variety of interesting proposals and design choices on a windfall profits tax. We’ve looked carefully at each of them and are engaging in conversations with Congress about design.”
The proposal, backed by 15 Democrats in the Senate and the House, would impose a new quarterly tax on American oil companies for crude produced domestically or imported from abroad.
The revenue would be syphoned off to consumers below a certain income in the form of a tax rebate that would amount to a few hundred dollars per year, but the bill does not appear so far to have support in Congress.
The bill is being sponsored by Sen. Elizabeth Warren (D-Mass.), who announced on MSNBC in March, “I’m co-sponsoring … a bill on windfall profits tax. We get it, supply and demand, prices go up, but profit margins should not go up, that’s just oil companies gouging.”
“Big oil companies are making higher profits off Putin’s war,” tweeted Warren.
U.S. Sen. Elizabeth Warren (D-Mass.) speaks during a hearing on Capitol Hill in Washington on Sept. 28, 2021. (Alex Wong/Getty Images)
The “windfall tax on oil would guarantee $200 oil,” responded Dan Rosenblum, a financial analyst at Sharkbiotech.com, in a tweet, explaining that a tax on gas producer profits would cause U.S. fuel prices to skyrocket.
Ramamurti admitted that there would be a potential impact on supply if a windfall tax on producers was imposed, but he said he did not see this as an “insurmountable hurdle.”
“One thing you want to be aware of when you are looking at those types of proposals is how is it going to affect supply as well,” said Ramamurti.
“I don’t think that’s an insurmountable hurdle, but it is an important question at a time when there’s clearly a supply issue.”
His comments came just a day after he told reporters that the administration’s plan to combat inflation included shrinking the Federal budget deficit, by raising taxes on high-income individuals and major corporations.
“What the president has done and made clear is that we are dedicated to doing everything we can to stop and push back on that Russian aggression, but it’s going to cause pain for American consumers in the short term, and gas prices are one unfortunate example,” Ramamurti told local media.
High energy prices due to the war in Ukraine, declining U.S. energy supplies, and supply chain logjams have pushed oil producer revenue to record highs this year.
Exxon Mobil, the largest U.S. oil producer, earned $5.48 billion in the first quarter and said that it would triple its expected stock buybacks through 2023 to $30 billion.
The Biden administration has blamed energy producers for not investing in further output and for not passing on more of their earnings to consumers, despite White House policies that have discouraged investment in energy production and supply.
President Joe Biden is under intense pressure from his party to ease gas prices before the midterm elections in November, as the approval ratings for the Democrat-controlled Congress continue to sink in the polls.
U.S. President Joe Biden at the Eisenhower Executive Office Building in Washington on June 1, 2022. (Kevin Dietsch/Getty Images)
U.S. consumer price growth slowed down in April after gas prices dipped below the March record high, while consumer prices were up 8.3 percent in April from the year prior, according to the Labor Department.
As a cyclical industry, taxing windfall energy profits during a good cycle is likely to discourage investment in energy production.
The U.S. energy sector has been the worst-performing part of the market over the past decade, despite major increases in total output.
An energy producer tax could be a two-way street for energy market investors, especially if producers reduced through-the-cycle investment in the United States, which may lead to sustained higher global oil and natural gas prices.
There was similar criticism of the proposed U.K. tax on energy producers, “We understand the worry for millions of people about how high energy costs are challenging their household budgets—and the need for support to help make ends meet,” said a Shell spokesperson, “but at the same time, we must sustain investment in securing supplies of oil and gas the U.K. needs today, while allocating future spend for the low-carbon energies we want to build for the future.”
The national average for a gallon of gasoline in the United States hit $4.715 on June 2 up from $4.671 the day before, according to AAA.
Brent Crude was at nearly $118 and West Texas Intermediate crude stood at $117 at the end of trading on June 2.