A “windfall profits tax” – a tax against industries that experience “above-average” profits – would be the nail in the coffin for America’s energy industry. This is an excise tax on a critical U.S. industry. A surcharge that could lead to even less oil production, and consequently affect America’s small businesses who desperately need lower gas prices.
Although President Biden contends it is the traditional energy industry that is responsible for skyrocketing gas and oil prices, the issue is more complex than that, and his administration’s policies are also to blame.
President Biden has alleged that industry executives are to blame for the pain at the pump. As he asks domestic companies to ramp up production, his administration simultaneously is discussing windfall profits tax legislation that would set a 21 percent surtax on the “excess” profits of oil and gas companies with more than $1 billion in annual revenue.
Canary Oilfields CEO Dan Eberhart, wrote in Forbes, that the windfall profits plotline is simply false. Eberhart noted:
“Profits from the S&P 500 energy sector stand at 10 cents on the dollar, 3 cents below the average of the overall index and substantially lower than other sectors such as information technology (25 cents), real estate (18 cents), financials (19 cents), and communications (17 cents).”
Gas prices have hit an average of $5 per gallon for the first time ever. The oil and gas industry requires long-term capital investments, but a new tax would drive uncertainty and harm and inhibit needed investment. The windfall profits tax has been attempted before under the Jimmy Carter administration, and the results were disastrous. Why assume it might be different this time? It won’t be.
The equation is simple: more tax = less production, less production = higher prices. A windfall profits tax is not the solution to America’s energy crisis. Supportive policy to increase domestic energy production is.