Economist Larry Summers is pushing back after President Joe Biden floated the possibility of punishing the oil industry for high prices by imposing a windfall profit tax.
“I’m not sure [I] understand the argument for a windfall profits tax on energy companies,” Summers said on Twitter Tuesday morning. “If you reduce profitability, you will discourage investment which is the opposite of our objective.”
Summers, an eminent Democratic economist and top adviser to Presidents Bill Clinton and Barack Obama, has at times been a vocal Biden critic. He sounded the alarm early last year on inflation, warning that Biden’s American Rescue Plan risked overheating the economy and sparking inflation.
Biden on Monday called out Big Oil’s jaw-dropping profits and raised the possibility of pursuing tax penalties if oil and gas companies don’t invest more aggressively in new supply at lower prices.
“Record profits today are not because they’re doing something new or innovative. The profits are a windfall of war,” Biden said from the Roosevelt Room, alongside Treasury Secretary Janet Yellen and Energy Secretary Jennifer Granholm. “Enough is enough.”
Democrats have highlighted the surging profits and generous shareholder returns of ExxonMobil, Shell, Chevron and other big oil companies at a time when Americans are hurting from elevated gasoline prices.
Exxon alone reported a record $18.7 billion in quarterly profit, up 177% from the same period last year. That amounts to a staggering $2,350 per second.
Big Oil has been crushing the rest of the stock market recently — Exxon’s share price has spiked 81% so far this year. The S&P 500, on the other hand, is down 19% this year and on pace for its worst year since 2008.
But oil is a notoriously boom-to-bust industry. Oil companies lost billions of dollars — and many went bankrupt — in 2020 when oil prices briefly crashed below zero for the first time ever during the Covid recession.
“If it is a fairness argument, I don’t quite follow the logic since even with the windfalls Exxon has underperformed the overall market over the last 5 years,” said Summers.
The White House did not immediately respond to a request for comment to the Summers criticism.
Not surprisingly, the oil industry itself fired back at talk of a windfall profit tax.
Mike Sommers, CEO of the American Petroleum Institute, said in a statement on Monday that instead of “taking credit for price declines and shifting blame for price increases,” the Biden administration should “get serious” about addressing the supply and demand imbalance.
Raising taxes on the oil industry would discourage investment in new production, the API warned — “the exact opposite of what is needed.”