- Paul Constant is a writer at Civic Ventures and host of “Pitchfork EconomicsAudio recording.
- He spoke with California Democratic Congresswoman Ro Khanna about the big oil dividend tax.
- The proposed tax on large oil producers would be used for discount checks for lower- and middle-class Americans.
While you might expect the entire economy to suffer from higher inflation, some companies have reported that some Biggest profit ever In 2021, when Inflation has reached its highest level in nearly 40 years.
Our understanding of how the economy works suggests that if companies are paying more for materials thanks to the pandemic-ravaged global supply chain, their profits should be lower. Instead, companies use inflation scare Cover to raise prices and increase profits more.
According to the Economic Policy Institute analysis, nearly 54% One of the recent inflationary price hikes that Americans are paying has gone towards corporate profits. And people began to notice: in February, Survey from Data for Progress And he indicated that 63% of respondents came to the conclusion that “big companies are taking advantage of the epidemic to unfairly raise prices on consumers and increase profits.”
like leaders Senator Elizabeth Warren California Democratic Congressman Ro Khanna has singled out the oil and gas industry as a particularly egregious example of corporate price gouging. Congressman Khanna recently joinedPitchfork Economics’ podcast to discuss Big Oil Profit Taxlegislation he helped introduce in March that would address that disparity between gas prices and gas companies’ profits.
Across the country, Americans Paying record gas pump prices, and Big Oil is making a profit. And although ExxonMobil lost $3.4 billion in the first quarter of the year after halting its operations in Russia in response to the Russian invasion of Ukraine, The company is still doubling its profits in the first quarter of last yearto $5.5 billion. Chevron, who claimed in her last quarterly report that she is suffering Less economic impact from the Russian invasion Of its peers, it has the highest profits in at least a decade.
Under the massive oil windfall tax, large oil companies (those that import or produce more than 300,000 barrels of oil per day) will pay a 50% tax per barrel on the difference between the current selling price and the pre-pandemic average price of oil — essentially A tax on profit margins. By calculating the average price of a barrel between 2015 and 2019, every penny over $66 a barrel would be taxed. (At the time of writing, the oil is standing at $110 a barrel.)
The 300,000-barrel threshold is directly aimed at the largest multinational oil producers – ExxonMobil, BP, and a handful of other companies that have taken over Tens of billions of dollars this yearR – Leaving small domestic oil companies, which produce about 70% of the country’s oil, exempt from tax.
The revenue collected from Big Oil’s windfall profits tax will then be channeled to lower and middle-class Americans in the form of a quarterly tax deduction check. Khanna estimated that if the oil majors sold their product at $100 a barrel, the incremental revenue would amount to $300 every three months for every American family earning less than $150,000.
“There are a lot of middle-class and working people who are getting hurt, for whom a few hundred dollars a month would make a big, big difference,” Khanna said.
There is also precedent for this type of taxation for the major oil companies. In April 1980, the Carter Administration passed a law Crude Oil Profit Taxwhich created a selective tax on domestic oil production and generated $80 billion in total revenue before its abolition in 1988.
Legislation sponsored by Khanna It differs from the crude oil profit tax in several important ways. While revenue from the proposed new tax would provide rebate checks, 1980 legislation earmarked revenue for tax cuts, low income assistance programs, and transportation projects.
Perhaps most importantly, the new legislation doesn’t just apply to domestically produced oil like the 1980 tax, which some critics say penalized domestic oil producers and wealthy international oil companies. The Congressional Research Service In 2011, it found a plan (like Khanna’s) directly tied to the profits of the world’s largest companies that would create “less economic distortion” than the 1980s tax “without reducing domestic oil supplies”.
New legislation for large oil profits tax was criticized by the usual anti-tax organizations, but could prove popular among ordinary Americans, with one survey showing that 87% of potential voters would preferSuppression of price manipulation by oil companies. ”
This disgust with Big Oil makes sense to Khanna. “I think the insulting thing here is that the big oil companies are making money when everyone in America is willing to sacrifice to stand by the Ukrainians,” he said.
When everyone pays a higher price to support Ukrainian freedom, Americans are willing to shoulder the burden. But when the oil majors overcompensate for their losses by reaping huge profits at the expense of the rest of the country that pays more pumping gas, populist solutions, like the big oil dividend tax, get support.