On Monday, President Biden threatened gas and oil corporations with a “windfall tax,” accusing them of “war profiteering.”
What did Biden have to say?
Speaking at the White House, Biden tried to accuse energy companies of reaping “outrageous” profits from the exploitation of the Ukrainian conflict.
Biden stated that oil firms must reinvest their earnings and lower the price of oil, or else.
“If they don’t,” Biden warned, “they’ll pay a greater tax on their surplus earnings and face other constraints. It’s time for these firms to stop profiting from war, meet their obligations to our country, and give the American people a break while still doing extremely well.”
The United States is not at war.
Furthermore, Biden said that if oil firms did not profiteer, Americans would spend at least 50 cents less per gallon of gas. He didn’t present any evidence to back up his assertion.
What was the reaction?
Former Treasury Secretary Larry Summers, who served in both the Obama and Clinton regimes, warned that Biden’s windfall tax would backfire.
“I’m not sure I understand the case for taxing energy corporations’ windfall profits. Reduced profitability discourages investment, which is the reverse of our goal” Summers brought this up.
“If it’s a fairness issue, I don’t quite get the reasoning because Exxon has underperformed the entire market over the past five years,” he said.
Summers correctly noticed that the oil industry is highly volatile.
For example, while Biden stresses the industry’s present earnings, ExxonMobil, BP, Shell, Chevron, and TotalEnergies will lose $76 billion in 2020. Biden, on the other hand, did not make mention of it.
Meanwhile, in reaction to Biden, the American Petroleum Institute stated that the oil sector does not influence the price at the pump.
“Global commodity markets set prices, not oil firms,” stated API CEO and President Mike Sommers.
Economists at the Federal Reserve Bank of Dallas have highlighted why oil firms are not to blame for high gas prices. Their estimates show that less than 60% of the cost of gas is directly tied to the cost of oil. Other expenses connected with gas prices include refining, distribution, and taxation.
The truth is that gas stations have complete influence over the price of gasoline at the pump.
“Because only 1% of service stations in the United States are controlled by corporations which also produce oil,” the Dallas Fed explained, “US oil producers are not in any position to control retail gas prices.”