Is it time to tax oil windfalls?: The year’s numerous oil price spikes, mostly related to the stop-and-start war in Iran, have put a lot of money in oil companies’ pockets.
And according to a new NPR report, there are growing calls for a tax on windfall oil profits. As noted by the Guardian, the 100 largest oil companies in the world “banked more than $30m every hour in unearned profit in the first month of the US-Israeli war in Iran.”
Generic Oil Tanker Image. Image Credit: Creative Commons.
After Russia’s invasion of Ukraine led to a similar spike and windfall profits, both the European Union and the United Kingdom launched such a tax, with the EU version lasting two years and the U.K.’s continuing to this day.
The United States did not impose any such tax, but one U.S. senator wants to.
U.S. Sen. Sheldon Whitehouse (D-RI) introduced legislation earlier this year called the Big Oil Windfall Profits Tax Act. Rep. Ro Khanna (D-CA) introduced a similar bill in the House in 2022 and has reintroduced it since then.
“Trump’s war of choice in Iran is not just a moral mistake but an economic blunder that is skyrocketing gas prices for working Americans. I’m proud to reintroduce the Big Oil Windfall Profits Tax Act alongside Senator Whitehouse to stop Big Oil from profiteering off of foreign wars at Americans’ expense and deliver real relief at the pump,” Rep. Khanna said in a statement when the bill was reintroduced earlier this year.
“ We’re actually somewhat generous about letting [the oil companies] keep half of the excess profits,” the senator told NPR, “but we want at least half of it to go back.”
The tax, as Whitehouse explained it to NPR, would compare the price of a barrel of oil before the war to the present and tax half of those “excess” profits.
The bill would also affect only larger oil companies and would not affect 70 percent of domestic oil production, NPR reported.
A Similar Attempt in the Past
Something similar was attempted in the U.S. in 1980, following the oil price shocks of the late 1970s. It failed to bring in as much revenue as projected, NPR reported, because oil prices collapsed by the mid-1980s.
In addition, Tyler Priest, historian of oil and energy at the University of Iowa, told the outlet that oil companies did things to get around the tax- because it taxed oil at “the point of sale,” the companies “could lower the ‘transfer price’ of the crude oil it sold to its own refineries to reduce the excise tax,”
The Oil Industry Responds
The American Petroleum Institute, naturally, has come out against Whitehouse’s proposal.
“For investment in any industry,” Dustin Meyer, senior vice president of API, told NPR. “You need certainty. And proposals like this erode exactly the sort of certainty that is needed to make the investment that has brought the United States to such an unparalleled position of American energy leadership.”
“ It’s just fundamentally misguided to penalize energy production, especially at this time, and that’s exactly what this proposal does,” Meyer added.
Another proposal in Congress, introduced by Sen. Charles Schumer (D-NY) and two other Democrats, is called the Taxing Buybacks from Big Oil Windfalls Act, which would do just that by targeting stock buybacks by oil firms.
The Tax Foundation has come out against that proposal.
“The oil and gas stock buybacks tax violates several core principles of sound policymaking,” the Foundation writes. “For one, it is not neutral: there is no justification for taxing buybacks in one industry at a 25 percent rate while taxing buybacks in all others at only 1 percent. It is also not stable. Introducing a dramatically higher rate for a brief period based on the fluctuations of gas prices is not a recipe for predictability:
Will It Happen?
Under a Republican-controlled House and Senate, the bill has gone nowhere in the current Congress, despite reports from 12 fellow Senators who have backed Whitehouse’s bill.
However, such a proposal could find new life in the event of a Democratic takeover of Congress in the midterm elections. And Khanna, who introduced the House version, is widely expected to run for president in 2028, and his campaign could give the proposal greater oxygen and attention.
About the Author: Stephen Silver
Stephen Silver is an award-winning journalist, essayist, and film critic, and contributor to the Philadelphia Inquirer, the Jewish Telegraphic Agency, Broad Street Review, and Splice Today. The co-founder of the Philadelphia Film Critics Circle, Stephen lives in suburban Philadelphia with his wife and two sons. For over a decade, Stephen has authored thousands of articles that focus on politics, national security, technology, and the economy. Follow him on X (formerly Twitter) at @StephenSilver, and subscribe to his Substack newsletter.
