It’s never fun to be the party in power at a time of economic trouble. Unfortunately, progressive leaders in Congress have responded to the financial challenges Americans are facing by ignoring the failures of their own policies and trying to pass the buck. Their preferred scapegoat, as per usual, is “greedy corporations” who progressives say have nefariously joined together to drive prices — and their profits — up.
That’s the thinking, such as it is, behind a proposal by Rep. Ro Khanna (D-CA) and Sen. Sheldon Whitehouse (D-RI) to tax “windfall” profits taken in by oil companies. The proposal would establish a 50 percent tax on the difference between per-barrel oil prices charged by companies and the average per-barrel price between 2015-2019, or $66 per barrel. Revenue from the tax would then be rebated to taxpayers in the form of another round of stimulus payments.
This proposal relies on the idea that oil companies have total control over oil prices, and simply chose this moment to launch their greed into overdrive. That’s a claim that makes little sense if one thinks about it for even a moment.
Consider that as recently as 2020, per-barrel oil prices briefly went negative as demand dried up and storage became an issue, meaning that oil companies were actually paying “buyers” to take oil off their hands. If companies set oil prices based upon their own whims, why would they ever do that?
They wouldn’t, of course. The truth is that oil companies are as beholden to laws of supply and demand as any other industry, and in some ways even more so. That’s because oil companies also have to deal with petro-states like Russia and the members of the Organization of Petroleum Exporting Countries Plus (OPEC+), where disruptions in production and trade can have major consequences.
Most recently, such consequences happened in the form of a large cut in OPEC+ production back when oil prices dropped in 2020, followed by the Russian invasion of Ukraine and the resulting sanctions. Taken together with ongoing supply line issues, and even though OPEC+ has since increased production, it’s not particularly surprising that oil prices are high. It certainly doesn’t require a sinister cabal of oil tycoons conspiring together to raise prices.
And just as this unstable market can cause oil prices to spike, they can also drop for a far longer time than they did in 2020. Khanna and Whitehouse quite clearly cherry-picked their data to inflate the “price-gouging” that they are alleging: driven by the American oil and gas production boom, the average inflation-adjusted price of a barrel of Brent crude between 2015-2019 was indeed about $66 per barrel, but the average inflation-adjusted price per barrel of the previous four years was $132 — even more than it is now. If Whitehouse and Khanna made their benchmark the years 2010-2019, a far more representative sample, the average price per barrel would be about $96.
What’s more, we know what happens when we try to tax “windfall” oil profits. President Jimmy Carter tried to do it almost half a century ago, and it resulted in reduced domestic oil production and increased reliance on foreign oil. Particularly in the wake of a diplomatic fallout with one of the world’s leading oil exporters, policies that increase dependence on foreign oil should be the last things on our minds.
Left-leaning Members of Congressshould stop trying to pass on the blame for impacts they should have known their policies would have. A responsible reaction to a multifaceted issue of global trade is hardly to insult Americans’ intelligence by pretending the culprit is a sudden wave of corporate profiteering.