(Bloomberg) — Senators Sheldon Whitehouse and Elizabeth Warren say they’re working on a proposed new tax targeting profits being reaped by oil companies as crude prices spike amid geopolitical tensions.
“Big Oil’s first priority is to maximize profits,” Warren, a Massachusetts Democrat, tweeted on Wednesday. “We can’t let them use Putin’s invasion as an excuse to pad their bottom line with war-fueled profits,” she said, referring to Russian President Vladimir Putin’s invasion of Ukraine. “So I’m working with Senate Democrats on a windfall-profits tax.”
Oil companies are enjoying their biggest windfalls in more than a decade as crude prices hit levels not seen in more than 13 years. Even before the invasion of Ukraine, oil had rallied amid a recovery in global demand and tight inventories — sparking a cash bonanza for U.S. producers and fueling dividend increases and further stock buybacks.
The plan will require oil companies that produce or import at least 300,000 barrels of oil per day to pay a per-barrel tax equal to 50% of the difference between the current price of a barrel and the average price from the years 2015 to 2019, a period in which energy companies were recording large profits, according to a statement from Whitehouse’s office. Smaller oil companies will be exempt from the quarterly tax, so that large companies like Exxon Mobil Corp. and Chevron Corp., cannot raise prices without the threat of losing market share, according to the statement.
The revenue raised from the tax would be sent to individuals quarterly. The payments would phase out for individuals earning more than $75,000 or couples earning $150,000. Whitehouse, a Rhode Island Democrat, estimates that single filers would receive approximately $240 a year, and joint filers would get about $360.
The proposal is being made as Democrats consider ways to revive and remake President Joe Biden’s economic agenda to satisfy Senator Joe Manchin, a West Virginia Democrat. Manchin has said he could support a more targeted bill that would help curb inflation and shrink the deficit, including by raising some taxes.
The excess-profits levy is likely to be opposed by Republicans, many of whom have pledged to vote against all new taxes. That means the proposal faces an uphill battle if Democrats don’t include it in their partisan tax bill.
The windfall-profits levy echoes similar themes as other tax proposals that Democrats in Congress have floated. Lawmakers have developed plans for minimum corporate levies, and stricter offshore tax regimes as a way of targeting specific companies and industries that they don’t believe pay enough in federal taxes. Democrats have also proposed to eliminate all tax breaks for fossil-fuel companies that are currently in the tax code.
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