President Joe Biden wants oil companies to share the wealth as they reap historic profits — or at least use the revenue to boost domestic energy production and help American consumers at the pump. Amid rising gas prices this fall, the president announced plans for an oil and gas windfall tax if domestic energy producers do not invest some of their profits back into the economy to bring prices down.
American oil companies saw profits increase after Russia’s invasion of Ukraine, which made the world more reliant on U.S. energy supplies due to embargoes on Russian fuel. “It’s time for these companies to stop war profiteering, meet their responsibilities in this country and give the American people a break and still do very well,” Biden said during a White House speech in October.
He specifically called out ExxonMobil, which saw record profits in 2022, yet made no attempts to improve production that would help to reduce the cost of gas. Over the summer, gas prices topped an average of $5 a gallon across the country. Biden’s power to directly affect gas prices is limited since they depend on international factors outside of the White House’s control, but the move to back a windfall tax was seen as his attempt to show action and try to exert some power.
According to the Associated Press, ExxonMobil, Chevron, Shell, BP, ConocoPhillips and TotalEnergy earned more than $100 billion in profits in the second and third quarters of 2022 — more than two-and-a-half times what they earned in the same quarters of 2021.
“Oil companies’ record profits today are not because of doing something new or innovative,” Biden said in his White House remarks. “Their profits are a windfall of war, a windfall for the brutal conflict that’s ravaging Ukraine and hurting tens of millions of people around the globe.”
Biden’s announcement of a potential windfall tax came shortly before the midterm elections and was likely meant to address Americans’ concerns with inflation, which has not been helped by the rising cost of fuel. Higher energy costs hurt Americans when fueling their cars and trucks, but they also impact manufacturers, who pass along the expense to consumers in the form of higher prices on food, clothing and other goods.
The president is not alone in his concern over potential “war profiteering” among American oil companies. Sens. Bernie Sanders (D-Vt.) and Elizabeth Warren (D-Mass.) have also called for a windfall tax. California Gov. Gavin Newsom (D) also called on Congress to take action against energy producers. “Crude oil prices are down, but oil and gas companies have jacked up prices at the pump in California.
“This doesn’t add up,” Newsom said in a statement last September. “We’re not going to stand by while greedy oil companies fleece Californians. Instead, I’m calling for a windfall tax to ensure excess oil profits go back to help millions of Californians who are getting ripped off.” Even European leaders who are cutting their Russian energy imports have backed the Biden plan. U.S. gas is priced almost four times higher in Europe than it is domestically.
French President Emmanuel Macron stated that U.S. gas prices were not “friendly,” and an economic minister in Germany stated that the U.S. should demonstrate more “solidarity” when it comes to lowering energy costs. Oil and gas industry groups, however, have argued that a windfall tax would actually lead to higher energy costs and discourage investment in new production.
“Rather than taking credit for price declines and shifting blame for price increases, the Biden administration should get serious about addressing the supply and demand imbalance that has caused higher gas prices and created long-term energy challenges,” Mike Sommers, president and CEO of the American Petroleum Institute, said in a statement. “Today, the president is proposing to raise taxes on the U.S. natural gas and oil industry that is competing globally to produce the fuels Americans need every single day. Oil companies do not set prices — global commodities markets do.”
Republicans also argued that such a windfall tax would hurt domestic oil companies and make Americans more dependent on foreign oil and gas producers. Congress would need to sign off on the new oil company taxes, and given the results of the midterm elections — which gave Republicans a narrow House majority and did not substantially expand Democrats’ Senate control — the odds of that happening are low. But public pressure is sure to continue building on oil companies.
For more background, see the May 2012 issue of Congressional Digest on “Oil Industry Tax Breaks.”