President Joe Biden has accused oil companies of “war profiteering” and is threatening to impose a windfall tax if they fail to boost domestic production — and improve the Democrats’ fortunes in the 2022 midterms. It is ugly political theater. Demanding private entities act on behalf of the party or face punishment from the state, as the president might say, is semi-fascisty behavior.
Other than appealing to the anger and frustrations of economic illiterates, windfall taxes (a tax on allegedly excessive, or unfairly obtained, profits) make zero sense. They neither bring down the price of energy nor increase supply. All windfall taxes do is disincentivize oil producers — their business already facing an existential threat from Democrats — from investing in long-term production. And, as with all corporate taxes and regulations, the cost will be passed to the consumer.
Even if oil CEOs were regularly using $100 bills to light their cigars, profits are still better utilized in the hands of investors than federal nomenklatura or the Elizabeth Warrens of the world. But how many voters are aware that oil and gas has been one of the least profitable major sectors in America? In the 2010s, the energy sector rose 34 percent, the lowest return among the S&P 500’s 11 sectors. Its profit margins do not even rank in the top 10 this year. In 2015, 2016, and 2020, the net operating cost of the energy industry went into the red when oil prices fell below zero. Boogeymen companies such as Exxon have underperformed the market for years. The oil industry goes through booms and busts. We don’t bail them out in busts, we should not punish them in booms. If we do, it will only discourage the industry from keeping prices at natural lows in years of thin or no profits. I can’t believe we have to go through all this again.
The price of oil is dictated by a world market and a slew of local factors, including transportation costs, refining costs, taxation, and regulations, not by a bunch of middle-aged white men in boardrooms. The idea that oil and gas CEOs suddenly got together with supermarket chains, and meat, poultry, fish, eggs, fruit, and vegetable producers, and airlines and lumber companies, and so on, to “gouge” consumers is a puerile conspiracy theory.
By the way, clean energy is also seeing historic profits (granted, it’s a rickety business built on state mandates and subsidies.) Do they get a windfall tax for “war profiteering,” as well? Or is it just the companies the left despises?
If you want to lay blame, look to European and American climate change alarmists, who have far more to do with price spikes than oil company CEOs. Virtually every left-wing climate plan hatched in the past 30 years has aimed to artificially spike fossil fuels prices to create scarcity and suppress use to incentivize people to turn to other solar panels and windmills. None of them can pass. So Biden’s first order of business was to sign a string of executive orders undercutting domestic production, leaving the United States susceptible to energy market price fluctuations.
“No more drilling on federal lands. No more drilling, including offshore. No ability for the oil industry to continue to drill. Period,” Biden promised during the 2020 campaign when a gallon of gas was around $2. And he kept his word. The administration has handed out the fewest leases for drilling since World War II.
Biden would rather beg (and threaten) the Saudis or empower the Venezuelans, and bully American corporations he has helped to hamstring, than loosen restrictions on the energy market by reversing the Jones Act or changing the regulatory environment for domestic producers because he cares more about labor unions and climate hawks that help Democrats win elections than he does the American economy. It’s no more complicated.