Democrats Propose ‘Windfall Profits Tax’ on Oil Firms, Accuse Companies of War Profiteering and Price Gouging

The logo of ExxonMobil during the World Gas Conference exhibition in Paris, on June 2, 2015. Eric Piermont/AFP via Getty Images

Democrat lawmakers have introduced a bill seeking to impose higher taxes on oil companies for what they claim are “windfall” profits made from “cartel pricing” strategies, even as the Biden administration keeps enforcing policies which negatively affect the sector.

The “Big Oil Windfall Profits Tax Act” was introduced in the Senate by Sen. Edward J. Markey (D-Mass.), Sen. Sheldon Whitehouse (D-R.I.), and his Democratic colleagues. It aims to “crack down on profiteering by Big Oil and return the industry’s excessive gains to working people,” according to a press release on Feb. 14. Five of the largest publicly traded oil companies—BP, Chevron, Exxon Mobil, Shell, and TotalEnergies—have reported profits totaling around $264.3 billion in fiscal 2022.

The proposal will impose a 50 percent quarterly tax on the difference between the current price for a barrel of oil and the average price between 2015 and 2019. The new tax will apply to both domestically produced and imported oil barrels.

“Big Oil’s obscene profits last year are the spoils of war and cartel pricing. Clawing back Big Oil’s windfall and returning it to the American families who paid for it at the pump is good policy that will help deter future price gouging,” said Whitehouse, chairman of the Senate Budget Committee and a senior member of Senate Environment and Public Works Committee.

“Congress should heed the president’s call, ignore the fossil fuel industry’s lies, and deliver this needed relief for the American people.”

Biden’s Policies on Oil and Gas

Whitehouse’s claim that oil firms are benefiting from high gas prices due to war and price gouging is suspect. For instance, gasoline prices were high even before the Ukraine-Russia war began in late February 2022.

When Joe Biden became president in January 2021, the average U.S. retail gas price for the week ended Jan. 25 was $2.48 per gallon. On Feb. 21, 2022, days before the Russian invasion of Ukraine, oil prices had already risen to $3.62 per gallon, an increase of 46 percent. Gasoline prices were trading at $3.50 per gallon as of Feb. 13.

Many have blamed rising gas prices on the Biden administration’s policies which curtailed American oil and gas production. After becoming president, Biden issued an executive order that froze oil and gas leases on federal lands. He halted the Keystone XL pipeline that was supposed to supply 830,000 barrels of oil from Canada.

During his first 19 months in office, Biden leased only 126,228 acres of land for drilling. Since Richard Nixon, no other president has leased less than 4.4 million acres in their first 19 months.

Whitehouse’s claim about the oil industry engaging in price gouging was rebutted last year by the American Exploration and Production Council (AXPC).

“The reality is that American oil and gas producers simply do not—and cannot—price gouge. The largest non-state-owned oil company in the world (ExxonMobil) only has around 2 percent of the world’s oil reserves and production,” AXPC said in a blog post on May 23, 2022.

“Even if there was a mechanism for upstream producers to price gouge on the commodity market—which there isn’t—a company that controls such a small fraction of the world’s oil does not have the power to set the price of gasoline. This accusation is an example of the tail trying to wag the dog.”

Rebates, Biden Blames Oil Firms

The Big Oil Windfall Profits Tax Act proposes that revenue raised from windfall profits made by oil firms be distributed to consumers in the form of a quarterly rebate.

“With oil priced at roughly $90–100 per barrel, this levy would raise approximately $48.1 billion per year. At this price, single (tax) filers would receive an estimated $255 each year and joint filers $382,” according to the Feb. 14th press release. The legislation applies to large firms that produce or import a minimum of 300,000 barrels of oil per day.

The tax proposal comes a week after Biden’s State of the Union address on Feb. 7, in which he pointed fingers at oil companies for making profits.

“You may have noticed that Big Oil just reported record profits. Last year, they made $200 billion in the midst of a global energy crisis. It’s outrageous. They invested too little of that profit to increase domestic production and keep gas prices down,” Biden said.

At the end of last year, the American Energy Alliance released a report (pdf) stating 125 ways the Biden administration made it harder for American energy companies to produce oil and gas in the country.

This includes, among others, significantly increasing regulations, eliminating “federal fossil fuel ‘subsidies’ wherever possible,” hiring radical environmental activists to key positions, rejoining the Paris Climate Agreement, and selling oil to China from the U.S. Strategic Petroleum Reserve.