Democrats for Higher Gas Prices

Senators propose a windfall-profits tax to reduce oil production

WSJ editorial.

"You knew it was coming. Even as President Biden begs OPEC to pump more oil, Senate Democrats are threatening to punish U.S. oil companies with a windfall-profits tax if they increase production. The contradiction nicely summarizes progressive energy policy.

“Putin’s war is driving up gas prices—and Big Oil companies are raking in record profits,” Elizabeth Warren tweeted Thursday. To curb what she calls “Big Oil profiteering,” she and 11 other Senate Democrats have introduced legislation to impose the new tax. 

“We need to hold large oil and gas companies accountable” and “urgently need to invest in America’s clean energy economy,” says Colorado Sen. Michael Bennet. Accountable for what? Making money in a legal business? Meeting obvious consumer demand?

The Senators’ plan would require companies that produce or import at least 300,000 barrels of oil per day (or did so in 2019) to pay a per-barrel tax equal to 50% of the difference between the current and average price between 2015 and 2019 (about $57 a barrel). They say smaller companies would be exempt so the giants can’t raise prices without losing market share.

But oil companies don’t set prices, as the Federal Trade Commission has found time and again. Supply, demand and market expectations do. Crude prices fell $20 a barrel on Thursday after the United Arab Emirates said it would encourage fellow OPEC members to increase production. Imagine how much oil prices might fall if President Biden announced a moratorium on climate regulation that punishes fossil fuels. Instead, Democrats are threatening to hurt producers for producing more.

Not long ago climate progressives argued that declining oil profits showed that companies needed to move away from fossil fuels. That was what last year’s ExxonMobil board battle was supposedly all about. Liberals also say asset managers should divest from oil companies because their profits are doomed to decline as the world embraces green energy.

But now Democrats say oil companies are too profitable and blame them for benefiting from the tighter oil supply and higher prices that political hostility to fossil fuels has exacerbated. Rhode Island Sen. Sheldon Whitehouse says “oil companies never let a good crisis go to waste.” Neither do Democrats.

The windfall-tax proposal shows that Democrats don’t want U.S. companies to produce more oil so gasoline prices fall. They want higher gas prices so reluctant consumers buy more electric vehicles. They can’t say this directly because it would be politically suicidal in an election year with the average gas price above $4 a gallon, so they do it indirectly via taxes and regulation.

It’s hard to believe President Biden would back the windfall tax, but with the influence of the climate lobby in this Administration, you never know."