Time for a Windfall Tax on Oil Companies?

By Yuval Rosenberg

Welcome to the weekend! As the war in Ukraine continues, President Biden on Friday warned Chinese President Xi Jinping against helping Russia. Closer to home, lawmakers are pressing oil companies to cut drivers a break. And Spring Training baseball games have started!

Dems Split on How to Lower Gas Prices — or at Least Show They're Trying

With inflation at a 40-year high, Democrats have touted measures to aggressively fight price increases across a number of areas, from gas prices to prescription drugs to child care. But those efforts have often been hung up by intraparty divisions over various plans.

Let’s focus on gas prices for today.

“House Democrats, including many of the party’s vulnerable incumbents, are pushing to provide consumers relief from pain at the gas pump through rebates or tax cuts,” Roll Call’s Lindsey McPherson reports. “But some admit the proposals aren’t going anywhere and would amount to little more than political messaging bills.”

Perhaps the latest example: a proposed tax on the windfall profits of big oil companies. Sen. Sheldon Whitehouse (D-RI) and Rep. Ro Khanna (D-CA) last week introduced a plan to curb profiteering by large oil companies by taxing them on the difference between the current price of oil and the pre-pandemic average price from 2015 to 2019, $66 a barrel. The money raised by the tax would be sent to consumers via rebate checks to individuals earning up to $75,000 a year or couples making up to $150,000.

The lawmakers said that the new tax would raise about $45 billion and single filers would get about $240 a year while couples would get about $360. Those projections were based on an oil price of $120 a barrel, a level reached earlier this month. Prices have fallen since then but remain above $100 a barrel.

Calling out big oil: President Joe Biden this week argued that gas prices should be falling as oil prices do. “Last time oil was $96 a barrel, gas was $3.62 a gallon. Now it’s $4.31,” he tweeted. “Oil and gas companies shouldn’t pad their profits at the expense of hardworking Americans.” And Senate Majority Leader Chuck Schumer (D-NY) announced this week that Congress would call on oil and gas executives to testify about what he called an “alarming spike” in energy prices and why their companies are buying back stock instead of giving drivers a break at the gas pump. “The bewildering incongruity between falling oil prices and rising gas prices smacks of price gouging and is deeply damaging to working Americans,” Schumer said.

A windfall profits tax may face a difficult path, though. Sen. Joe Manchin (D-WV), who chairs the Senate Energy and Natural Resources Committee, isn’t sold on the idea, The Hill’s Alexander Bolton reports, adding that Republicans don’t think he’d get to “yes” on it. Manchin told The Hill that he wants to hold a hearing on the plan.

Even if Manchin were to support the idea, Republicans won’t, meaning it would likely get stalled in the Senate. “I can’t see any Republican supporting it,” Sen. Lisa Murkowski (R-AK) told The Hill. “I don’t see that it gets any traction and for lots of good reasons. If you want to send a positive signal to producers that they might want to be doing more, the worst thing you can do is threaten them with a windfall tax.”

Other plans for lowering gas prices: Other Democrats are still pushing alternative plans to provide some relief for drivers. “There are conflicting ideas within the caucus,” said House Ways and Means Committee Chairman Richard Neal (D-MA) told Punchbowl News this week.

• The gas tax holiday proposed by some Senate Democrats and endorsed by several Democratic governors faces pushback from lawmakers concerned that it would cut into vital infrastructure funding.

• Punchbowl reported Thursday that some Democrats have pushed to send Americans direct payments for gas and even build a website where drivers can apply for such payments. Rep. Earl Blumenauer (D-OR) told The Washington Post that he favors direct rebates to low-income drivers. “We've sent direct checks before,” he said. “We can do that. We know who these people are. And if that's what you want to do, do it in a targeted way. Make sure it gets to them and it isn't gummed up in oil company machinations and supply chain problems.”

• House Speaker Nancy Pelosi (D-CA) on Thursday endorsed the idea of forcing oil companies to use drilling permits or lose them. “There are 6,000 permits out there that people could drill, industry could drill,” Pelosi told reporters. “So they don't need to be upending our initiatives to save the planet from the climate crisis. If they want to drill, they have places to drill. Use it or lose it.”

Larry Summers Warns That Interest Rates Have to Go Much Higher

Former U.S. Treasury Secretary Lawrence Summers has been warning about the dangers of an inflationary spiral in the U.S. economy for more than a year, driven largely by what he saw as excessive pandemic relief spending under the Biden administration. Now he’s predicting the Federal Reserve will have to raise rates more dramatically to deal with the problem.

“Ultimately we’re going to need 4-5% interest rates, levels they’re not even thinking of as conceivable,” Summers told Bloomberg Television Friday. “They’re recognizing that they’re behind the curve. They’ve still got a long way to go.”

The problem is simple, Summers says: To beat inflation, the Fed has to raise interest rates higher than the rate of inflation, which he thinks will persist at levels above the Fed’s 2% target rate.

“If you want to tighten policy you have to raise interest rates by more than inflation went up,” Summers said. “We’ve got to raise interest rates by more than 4 percentage points, we’ve got to raise them by 4% to stay neutral and we probably have to raise them more than that.”

Unlike Federal Reserve Chair Jerome Powell, Summers doesn’t think inflation will fade on its own, at least not in the near term. “I don’t think we can count on the transitory inflation view,” he said.

And Summers is convinced that more inflation is on the horizon. “Perhaps we’re moving in the right direction,” he said, “but I think there’s a long way to go, and I don’t think the Fed has really done all that will be necessary to preserve its credibility in the face of the substantial inflation that I think is likely to come to us.”

Fed officials call for bigger hikes: St. Louis Federal Reserve President James Bullard, the lone dissenting vote in this week’s decision to raise short-term rates by a quarter-point, has been pushing the central bank to move more aggressively on inflation. On Friday he said he thinks the Fed needs to raise its interest rate target for the year.

“I recommended that the Committee try to achieve a level of the policy rate above 3% this year,” he said in a statement. “This would quickly adjust the policy rate to a more appropriate level for the current circumstances.”

Bullard also wants the bank to raise rates more rapidly, by half a percentage point at a time, at least initially. Federal Reserve Governor Christopher Waller seconded that view Friday, telling CNBC that although he voted for the smaller quarter-point hike this week based on geopolitical concerns, bigger hikes should be on the table at future meetings.

“The data’s basically screaming at us to go 50,” Waller said. “I really favor front-loading our rate hikes, that we need to do more withdrawal of accommodation now if we want to have an impact on inflation later this year and next year. So in that sense, the way to front-load it is to pull some rate hikes forward, which would imply 50 basis points at one or multiple meetings in the near future.”

Number of the Day: 94%

The mRNA vaccines from Pfizer-BioNTech and Moderna stayed highly effective at protecting against the worst outcomes from the omicron variant of Covid-19, a study released Friday by the Centers for Disease Control and Prevention showed. Adults who received two doses of the vaccines were 79% less likely to be put on a ventilator or die from Covid, while those who also got a booster shot saw a 94% reduction in risk.

“Anybody who is skeptical really needs to look at that number and think, ‘Okay, maybe I’m going to get a cold and feel sick, but 94 percent of the time, I’m not going to get put on a ventilator or die,’” Jeanne Marrazzo, director of the Division of Infectious Diseases at the University of Alabama at Birmingham, told The Washington Post.

Both Pfizer and Moderna have now asked the Food and Drug Administration to consider authorizing a second booster shot.

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