Analysis: Biden’s threatened windfall oil tax unlikely to pass U.S. Congress

WASHINGTON, Nov 2 (Reuters) – President Joe Biden’s threat to impose a tax on unprofitable profits on oil companies is unlikely to pass the U.S. Congress, although Democrats defied forecasts and managed to maintain a slim majority in November’s midterm elections. 8.

Congress passed a huge retroactive tax break for Big Oil while former President Donald Trump was in office, as demand for the fuel dropped during the COVID-19 pandemic. After oil prices rose following Russia’s invasion of Ukraine, European governments have imposed windfall taxes on their oil industries.

But most US lawmakers have shown little appetite to reverse that trend after oil companies such as Exxon Mobil Corp and Chevron Corp

Biden on Monday accused oil and gas companies of “war-profiteering” as shareholders received record profits boosted by Russia’s invasion of Ukraine. He said the company should lower fuel costs for Americans or invest some of their profits to increase domestic production.

“If not, they will pay higher taxes on excess profits, and face other restrictions,” Biden said, but tax and energy experts said he would have a hard time convincing Congress, which sets US tax policy. .

Senator Sheldon Whitehouse and Representative Ro Khanna, both Democrats, are among the lawmakers who have introduced the bill to cap excess oil company profits. But not all sitting Democrats support the effort, and the Senate will likely have to pick up Democratic seats next week even to get the simple majority needed to push the wind tax through budget reconciliation.

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Democratic senators Kyrsten Sinema of Arizona and Joe Manchin of West Virginia are likely to oppose the tax on undiscounted profits, reducing their prospects, congressional sources and research groups said. The senator’s office did not immediately respond to a request for comment.

State and local governments can take action regardless of what Congress does, said ClearView Energy Partners, a D.C. research firm.

“High prices tend to make government run out, and recessions can take a toll on state and local government finances,” ClearView said.

He said even U.S. oil-producing countries, known for their low taxes and lax regulations, “could begin to see industry benefits — potentially leading to the removal or modification of existing incentives, if not new levies.”

Administration officials acknowledged privately that it may be difficult to tax the federal windfall benefits, and said no deadline had been set for the next step. Other options include a possible ban on the export of oil products, he said.

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Asking companies to pay more taxes to fund government services from education to roads has been a key plank of Biden’s economic platform. Yet the windfall tax comment was quickly dismissed by industry and business groups and even by former Democratic Treasury Secretary Larry Summers, who suggested such a move could eventually raise prices by discouraging investment and oil production.

“Bottom line, this is all very good politics and economics,” said Scott Hodge, president emeritus of the pro-business Tax Foundation. He said a windfall tax enacted under former President Jimmy Carter in 1980 on industry had the opposite effect, lowering domestic production.

Big US companies pay less than their overseas competitors, Reuters research shows, and contribute much less to the federal budget than they did in the United States in the 1940s and 1950s.

The 2021 federal tax rate for Exxon is 2.8% and Chevron 1.8%, the left-leaning Center for American Progress calculated, after cratering profits and the Trump-backed COVID relief bill, the CARES Act reduces past taxes based on losses during and before. pandemic.

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Exxon declined to comment and Chevron had no immediate comment.

British lawmakers in July approved a 25% windfall tax on oil and gas producers in Britain’s North Sea expected to raise 5 billion pounds ($5.95 billion) a year to help consumers with rising energy bills. Greece, Spain, and Italy have also implemented windfall taxes.

Joseph Thornton, a US political historian and tax expert, said Biden’s plan is “not necessarily crazy,” but could be difficult to execute. Excess profits taxes on corporations had found traction during World War II simply because Americans were dying in the war, he said.

“That’s traditionally how this sense of moral turpitude is collected by politicians,” to tax companies during the war, he said, although high gasoline prices and inflation clearly hurt America.

The International Monetary Fund last month adopted well-structured permanent taxes on excess profits in fuel extraction, saying they could help raise revenue without reducing investment or increasing inflation.

Reporting by Andrea Shalal and Tim Gardner; Editing by Heather Timmons and David Gregorio

Our Standards: The Thomson Reuters Trust Principles.


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