Should the US impose a windfall tax on oil and gas companies?

The British government recently said it would use a “windfall” profits tax on oil and gas companies and give direct payments to citizens to ease cost-of-living increases.

Oil and gas companies will be charged an additional 25 percent tax on profits and the money will be used for a new benefits package that is said to be worth around $19 billion. It will expire before 2025, the British government said.

Around eight million low-income households will receive £650 ($818) in two installations later this year, while a further eight million pensioners will receive £300 ($377).

In the United States, a group of Democrats in Congress are pushing for a windfall tax on oil companies, calling out the firms’ plans to spend billions buying back their stocks to raise their value.

Critics, like The Wall Street Journal Editorial Board, argue the British government would be better off suspending green, environmentally friendly laws that increase energy costs.

Q: Similar to the UK, should the US impose a windfall tax on oil and gas companies?

James Hamilton, UC San Diego

NO: The oil industry today is very different from 30 years ago. Most of US production today comes from impermeable shale formations. Extracting that oil is very expensive. If “windfall” taxes are imposed on oil producers, the US will produce significantly less oil. That would mean higher prices for US consumers and make it harder for the world to get by without Russian production. Let’s produce the oil here rather than send more money to dictators.

Austin Neudecker, Weave Growth

YES: Fossil fuel companies were given billions in government subsidies during the pandemic, said Bailout Watch, while laying off thousands, according to Fortune, and used the money on bonuses and stock buybacks. As demand returned, rather than rehiring and ramping production, they allowed the prices to increase. Compounded with the Ukrainian invasion, these decisions are why we are paying at the pump and they are raking in record profits. They pollute the environment, they profit off tragedy, make them pay more tax.

Chris Van Gorder, Scripps Health

NO: It’s one thing for governments to establish taxes and another to make a unilateral decision to create taxes on individual industries or businesses for special occasions. This is very different than a state or the federal government giving tax rebates or temporarily suspending taxes to assist the public. I’d rather see more emphasis on using energy profits to make the United States energy independent for decades to come with new “green” technologies.

Norm Miller, University of San Diego

NO: While my answer is “no,” we should also not subsidize oil and gas companies, nor send out checks to all taxpayers unrelated to the real burden on people who make a living driving their cars and trucks. “Windfall” profits are an arbitrary term, as no one knows where to draw the line, but we do know higher oil prices will lead to higher production and that is what we should allow to happen rather than regulating the market via some political definition of excess profit.

Jamie MoragaIntelliSolutions

NO: We have already done this before (see Carter’s windfall profits tax from 1980). Some consequences of the windfall profits tax included increased reliance on foreign oil and reduced domestic production. Excise taxes like this also threaten renewable energy investments and energy transition plans and can worsen inflation. While trying to attempt a short-term solution, long-term problems can be created.

David Ely, San Diego State University

NO: Higher taxes are likely to have several negative consequences. Energy companies facing higher taxes may be less willing to invest in capacity, especially if it is unclear how long the windfall tax will remain in place. To expand the long-term supply of energy, more investment is needed. Also, part of the tax could be passed on to consumers of energy products, partially offsetting the benefits of cost-of-living direct payments to households.

Ray Major, SANDAG

Not participating this week.

Haney Hong, San Diego County Taxpayers Assoc.

NO: Consider this: if you were to sell your house right now, you’d likely make a windfall. You’d end up paying capital gains taxes anyhow; should we tax you more? While easy to demonize energy “profit” — I feel taken advantage of, too, at times and energy costs are highly regressive — the problem in energy is like the problem in housing: limited marketplace supply controlled by too few. increase competition; increase supply. That helps the poorest.

Kelly Cunningham, San Diego Institute for Economic Research

NO: After ignoring inflation, claiming it was merely “transitory” and supply chain issues, the government is now compelled to do something. Unfortunately, imposing greater taxes on producers suppresses production, which will cause output supplies to be reduced. Basic economic understanding is prices rise when there are shortages and fall when there are surpluses. Imposing higher costs by raising taxes on production will result in lower supplies and even greater pressures for gas prices to further increase.

Phil BlairManpower

YES: The oil industry has become the ugly stepchild of world conflict. They deserve their fair profit off of their normal business but do not deserve to benefit from the extreme profits provided to them by war and acts of God. A clear policy needs to be developed for any industry that grossly benefits from an event that harms millions of others.

Gary London, London Mother Advisors

NO: The better approach would be government or tax incentives for the oil companies to more rapidly transition to “energy” companies by offering them windfalls to bolster solar, wind and electric to get to market, and to further innovate. Taxing them to redistribute profits is short-term, petty and does nothing to slow climate change over the long term. The suggested alternative of suspending environmentally friendly laws is also ridiculous.

Alan Gin, University of San Diego

YES: Oil companies have reported huge profits, not due to anything meritorious on their part but due to an increase in demand for oil as the world economy revived and because of the Ukraine-Russian conflict. It might be argued that taxing profits would give the companies less money for capital investment. But they have spent more of their profits on dividends and share buybacks than on new energy development, perhaps as a result of losing billions investing in the fracking boom that went bust.

Bob Rauch, RA Rauch & Associates

NO: The consequence of flooding the economy with cash payments now may be worse pain later on with more inflation. If the government commits to reducing energy costs with direct fiscal support, it will be hard to reverse this as Americans will become accustomed to financial support each and every time they feel a squeeze. The levy will discourage investment in domestic production, meaning the US will need to import more oil and gas.

Have an idea for an EconoMeter question? Email me at phillip.molnar@sduniontribune.com. Follow me on Twitter: @PhillipMolnar

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