White House-Cited Economists Unequivocally Reject Calls for a Windfall Profit Tax
Leading economists continue to shut down claims that a windfall profit tax on oil and natural gas producers would lower energy prices and ease inflation.
Last week, domestic oil and natural gas companies reported record quarterly earnings, but as Energy In Depth noted, these financial results are the byproducts of high oil prices, which are driven by a post-pandemic demand rebound amid extreme supply disruption, and that energy companies do not control the price of oil or gasoline.
Yet, the news prompted renewed calls for a windfall profit tax from fringe Democrats, despite the fact that even aides inside the White House have shared their concerns that such a tax would directly contradict the administration’s efforts to boost the supply of oil.
On Twitter, the Congressional Progressive Caucus re-upped its call for a windfall profit tax:
“Big Oil can’t be allowed to get away with this as working people struggle to get by. Congress must tax their excess profit and return it to the people as a direct payment. Progressives in the House and Senate have introduced a Windfall Profits Tax to do just that. Let’s pass it.”
Expert economists quickly joined the conversation to clarify that rather than lowering prices, a windfall profit tax would likely raise prices and add to the financial stress Americans are currently feeling under inflation.
Jason Furman, Professor of Economic Policy at Harvard University and former Chair of the Council of Economic Advisers under President Obama, told CNN’s Poppy Harlow that a windfall profit tax could make the current gasoline price situation worse:
“Look, at this point, if you want to bring oil prices down, you need to increase oil supply. If you want to increase oil supply, you need to make it easier and more predictable for oil companies, oil refiners to build capacity in this country. I don’t think an excess profits tax is the way to encourage more investment and more supply. I think it’s barking up the wrong tree.” (Emphasis added)
Furman is an influential voice on economic policy – just last week, White House Press Secretary Karine Jean-Pierre touted Furman’s endorsement of the new reconciliation bill’s inflation-fighting potential. Furman added that depending on how the tax is designed, it could “absolutely” make gas prices higher:
“If you punish companies every time that they’re in this situation, it will make them not want to expand capacity in the same type of way.”
Mark Zandi, the chief economist at Moody’s Analytics, has previously argued that a windfall profit tax would discourage investment, increase uncertainty, and disincentive new production and called the proposal “bad economics.” Zandi’s research on inflation and economic policy is frequently held up by the White House as unbiased, expert economic analysis.
Speaking on CNN’s Inside Politics with John King following last week’s earnings results, Zandi held firm in his opposition to a windfall profits tax:
“You know, I don’t sense gouging. This is age old. When global oil prices go higher energy companies benefit. They make a lot of money. Conversely, when oil prices are low and go down, they lose a lot of money. That’s been the case since the beginning of time. … The other thing, John, is we need energy companies to produce more oil, so we need them to make money to be able to [produce more], and high earnings and profits to incentivize them to go out and put more rigs in the ground and produce more oil and get the oil prices down. That is the key to getting inflation lower.” (emphasis added)
Zandi and Furman join the long list of experts who have debunked allegations of price gouging and rejected a windfall tax as a solution to high gas prices.