The US seems to be following in the UK’s footsteps as it eyes a windfall tax on oil and gasoline. According to Deputy Director of the National Economic Council, Bharat Ramamurti, the Biden administration has looked at numerous proposals to provide relief for the surge of gas and oil prices, the current leader being a windfall tax.
Windfall Tax Recap
A windfall tax is a tax utilized by governments against certain industries when economic conditions result in large and unexpected profits. The purpose of a windfall tax is to redistribute excess profits in one area for the greater social good, although sometimes when levied they can be very controversial. In some instances, individual taxes such as inheritance tax or taxes on lottery winnings can be levied as part of a windfall tax.
Gas and Oil Producer Profits
The recent high energy prices have provided significant profits for large oil producers so far this year. A clear tell of this can be seen by Chevron, one of the largest oil and gas producers posting their Q1 adjusted earnings of $6.5 billion ($3.36 per share) up from $1.7 billion ($0.90 per share). The company’s profit nearly quadrupled!
On top of this, the Biden Administration has been criticizing producers for sitting on profits and not further investing in reducing costs. Chevron reported a major increase in net change in cash reporting a 293.65% (or $6.01 billion) increase from Q4 2021.
Affect on Americans
While taking some funding from large corporations and redistributing them to Americans may sound like a good idea, there is still a lot of uncertainty about the deployment of funds. As of now, it seems that the consensus would be to pay consumers in the form of a tax rebate that may amount to a few hundred dollars a year.
Will This Happen?
There are many divided opinions about if the windfall tax will be deployed in the US, with some gas and oil producers having doubts, while the US government seems locked in on providing relief to consumers. Ramamurti stated in a webinar hosted by Roosevelt Institute this past Thursday, “We are very much open to any type of proposal that would provide relief to consumers at the pump.” While on the other end of the spectrum John Hess, chief executive of Hess Corp stated at an industry conference, “I don’t think it will happen in the U.S., mainly just the way the Senate’s divided, I don’t think (swing vote Senator) Joe Manchin would vote for it.”
Wrap Up
While we cannot be certain if a windfall tax will be established in the US, one thing is for sure – consumers need relief. The outcry and frustrations seen recently by consumers have been surrounding the same issues – the recent increase in their cost of living.