Senate Finance Committee Democrats are discussing ways to tax large oil and gas companies’ excess profits that could be tied to the recent spike in global crude oil prices and use the revenue to provide financial support to consumers impacted by higher costs at the pump.
“We’re looking at it right now,” Finance Chair Ron Wyden, D-Ore., told reporters Wednesday, noting he would have more to say after the panel reviews the concept and various proposals in more detail.
Finance member Sheldon Whitehouse, D-R.I., has introduced a windfall profits tax bill that would levy a quarterly tax on large oil companies and distribute the revenue to consumers through a quarterly rebate. The per-barrel tax would be equivalent to half the differential between the pre-pandemic average oil price from 2015 through 2019 and current prices.
Whitehouse’s bill has 12 Democratic co-sponsors, including five Finance Democrats: Sens. Elizabeth Warren of Massachusetts, Sherrod Brown of Ohio, Michael Bennet of Colorado, Bob Casey of Pennsylvania and Debbie Stabenow of Michigan. Rep. Ro Khanna, D-Calif., introduced a House companion measure (HR 7061) that has 14 Democratic co-sponsors, although none are tax writers.
“We would like to get a windfall profits tax through as quickly as possible,” Warren said. “The oil companies need to understand that the benefits of price gouging will be sharply undercut by a tax that's not across the board, but instead is a tax on how their profits increase during this short-term crisis.”
House Transportation and Infrastructure Chair Peter A. DeFazio, D-Ore., has introduced an alternative windfall profits bill that would impose a 50 percent tax on large oil producers’ taxable income for 2022 that exceeds 110 percent of their average adjusted taxable income from 2015 through 2019.
DeFazio’s measure, which has 28 cosponsors but none of them tax writers, would also direct the revenue back to consumers but through a monthly refundable tax credit that would be phased out by income.
DeFazio said he’s discussed the idea of a windfall profits tax with House Ways and Means Chairman Richard E. Neal, D-Mass. The tax writing panel has begun exploring the concept in both formal and informal discussions, panel member Dan Kildee, D-Mich., said last week.
The Congressional Research Service issued a report Wednesday on windfall profits taxes, noting that policymakers interested in the idea could choose to base windfall profits on differences in adjustable taxable income or in oil prices.
The latter approach has been used before, as CRS noted in its report. Former President Jimmy Carter proposed and the Congress enacted a crude oil windfall profits tax in 1980 after price controls enacted in the 1970s were eliminated. That tax was 70 percent of the difference between the price of oil and a base price indexed for inflation for integrated oil companies and 50 percent for others, with lower rates for certain types of production.
“Over time, the tax yielded less revenue as worldwide oil prices fell and the base was increased by inflation adjustments,” CRS said in its report, noting Congress repealed the tax in 1988 ahead of its scheduled 1991 expiration date.
The economic impacts of a windfall profits tax today would depend on how it is designed, CRS said. Beyond deciding whether to use an income-based tax or an excise tax on production prices, policymakers would have to consider questions like whether and how to tax imports, whether to include exemptions for small producers or those whose profits fall below a certain threshold, and whether companies could avoid the tax by reinvesting profits.
Brown said despite co-sponsoring Whitehouse’s bill, he’s not wed to that particular approach to taxing oil companies’ profits.
“I don't care how we do it,” he said. “I just think that if they're doing things, if they're taking advantage of this pandemic, taking advantage of people that way, they should be [held] accountable.”
Senate Republicans, meanwhile, seem opposed to the idea of a windfall profits tax. Senate Finance ranking member Michael D. Crapo said he sees it as an effort to tax American producers if they increase domestic production that will drive prices up.
The Idaho Republican, speaking at a press conference Wednesday where he and other GOP senators panned numerous proposals Democrats have floated for providing consumers with relief from high gasoline prices, said it’s also a bad idea to be sending direct payments to consumers that would further drive up demand.
“If you add more federal spending, even if it's to give some temporary relief in terms of a gas card or something, you are adding to the demand side of that supply and demand economy that we live in,” Crapo said. “And the end result ultimately will be higher inflationary pressures. We've got to deal with the supply side.”
Because of Republican opposition, Democrats would have a hard time moving any windfall profit tax bill through regular order, as that would require at least 10 GOP senators to vote with Democrats to end a likely filibuster. It's also unclear how such a measure would be received by Senate Energy and Natural Resources Chairman Joe Manchin III, D-W.Va., a key swing vote for his party whose state is a major fossil fuel producer.
“I don't know how we do it stand-alone with support of the oil industry here,” Brown said. “But maybe it could roll into something. I don't know.”