Joe Biden is right: America needs a windfall profits tax on big oil. Source: THE GUARDIAN

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Joe Biden is right: America needs a windfall profits tax on big oil

Robert Weissman

The case for a windfall profits tax is straightforward. There’s a reason why the idea is so popular

Joe Biden speaking into a mike with the American flag in the background

‘Big oil’s profits are eye-popping.’ Photograph: Michele Eve Sandberg/REX/ShutterstockWed 2 Nov 2022 10.16 GMTLast modified on Wed 2 Nov 2022 10.32 GMT

Consumers are paying as big oil has gobbled up more than $125bn in profits in 2022 – triple the total from last year – doing nothing other than watching world oil prices soar due to Russia’s invasion of Ukraine.

The solution to this heist is simple enough: a windfall profits tax that extracts big oil’s unjust enrichment and returns the money to the people.

Outraged by big oil’s greed, President Biden was right to call for a windfall profits tax – but wrong to encourage more oil production as an alternative.

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The case for a windfall profits tax is straightforward. The cost of getting oil out of the ground remains the same. Still, the market price of oil has skyrocketed due to Russia’s invasion of Ukraine. For the integrated major oil corporations, that means they have been able to charge consumers far more, despite their costs remaining flat.

Whether you think the companies doing that are displaying unmitigated greed or just following the rules of the market, there’s no question that they are reaping windfall profits – and doing so at consumers’ expense. A windfall profits tax, with the revenue fully rebated to taxpayers, would offset the pain at the pump and limit big oil’s egregious rip-offs.

There’s nothing revolutionary about this. Although the implementation has been uneven, a number of European countries have already put windfall profits taxes in place and others are lined up to do so. UN Secretary General António Guterres has called for such a tax. Even Shell’s CEO, Ben van Beurden, acknowledges that it makes sense for governments to tap the industry to aid struggling consumers.

Not surprisingly, the American people overwhelmingly support the idea. They know they are being ripped off, they know it hurts and they’d like something done about it.

All of this is deeply felt. It’s not just that, in a car-dependent society, many people have little choice about driving and fueling their cars. It’s that nothing in America is as clearly labeled as the price of a gallon of gasoline. We post it on signs outside filling stations, project it from towers along our highways and have built software to ensure people know where they can find the best price in town.

It’s also that big oil’s profits are so eye-popping: $19.7bn for Exxon in just the third quarter of the year. More than $11bn for Chevron. $9.5bn for Shell and $8.2bn for BP. In a time of significant inflation, all of this stings.

The main arguments against taxing big oil’s enormous profits are easily refuted. Some highlight design difficulties of a windfall profits tax, but there are a number of possible alternatives that would do the job. Others argue it would raise prices for consumers, but a tax on excess profits will not affect consumer prices at all – except perhaps to bring them down. And others say, just let supply and demand work itself out – but that’s just a way to rationalize big oil’s windfall profits.

The only genuine argument against a windfall profits tax is that big oil has so much political power that it would never let such a thing come to pass. That, of course, is not a merits argument. It also overstates big oil’s political invulnerability – if a windfall profits tax gains momentum, given its popularity and simplicity, it will be increasingly hard for big oil’s political allies to stop it.

That’s why it was a major breakthrough on Monday when President Biden lent his support to such a tax. Unfortunately, Biden linked the call for a windfall tax to a demand that big oil companies increase production.

That’s a wrong turn. Drilling more will not lower prices for US consumers. More oil from US lands will just be exported – as 29% of US crude production now is, thanks to the 2015 elimination of a crude oil export ban – and will not affect the global price of oil.

Worse, more investment in oil drilling will deepen our dependence on fossil fuels when the worsening climate catastrophe demands we speed the transition away from fossil fuels. The global energy disruption caused by the Russian invasion absolutely requires short-term and makeshift responses to address supply and price challenges. But the only sane long-term response is to accelerate the move to clean energy.

Americans know they are being ripped off by big oil profiteering and they want a direct solution. A windfall profits tax on big oil is exactly that.

  • Robert Weissman is the president of Public Citizen

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