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According to an energy expert who spoke to FOX Business, introducing a windfall tax in California would be detrimental to oil companies.
California Democratic Gov. Gavin Newsom on Friday called for companies involved in the exploration, production and refining of oil to be levied a windfall profits tax on profits that exceed a certain amount. The funds raised by the tax would then be “used to provide rebates/refunds to California taxpayers impacted by high gas prices,” according to a news release from the Newsom office.
“Crude oil prices have fallen, but oil and gas companies have pushed prices up at the pump in California,” Newsom claimed in a statement. “We will not stand idly by while greedy oil companies trick Californians.”
A customer pumps gas into his car at a gas station on May 18, 2022 in Petaluma, California. ((Photo by Justin Sullivan/Getty Images)/Getty Images)
According to AAA, the average price for regular gasoline in California on Friday was $6.29. This price has increased by 11.3% versus the average price of $5.58 a week ago. Meanwhile, the average price of regular gasoline nationwide on Friday was about $3.80.
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Phil Flynn, a fellow at FOX Business and senior market analyst at Price Futures Group, said such a windfall tax would “further discourage investment in an industry that desperately needs capital to stay in business in an increasingly hostile government environment.” “. he said.
In April 2021, Newsom signed an executive order aimed at phasing out oil production in California by 2045. More recently, in August, the California Air Resources Board ruled that all new vehicles in the state must run on electricity by 2025, a directive from the governor before asking regulators to look into it.
California Gov. Gavin Newsom (D) is seen in the rotunda of the US Capitol after meeting with Speaker of the House Nancy Pelosi, D-Calif., Friday July 15, 2022. ((Tom Williams/CQ-Roll Call, Inc via Getty Images) / Getty Images)
“There’s this misperception — created in part by politicians — that energy companies are kind of making too much money,” Flynn told FOX Business. “The truth is, their profits are higher than they have been in the past, but they don’t put it in perspective how much these companies have to invest to bring the offering to market, and it doesn’t take into account government regulations that do that.” have restricted supply, which has also led to an increase in prices. It also doesn’t take into account that most of these energy companies have historically lost money just a few years ago.”
Flynn told FOX Business the windfall tax Newsom is asking for is a “tool to put the blame” on oil companies “who are just trying to do their jobs and feed the market well.” It would limit supply and push prices up in the long run, he said.
California Gov. Gavin Newsom unveils his proposed 2022-2023 state budget during a news conference in Sacramento, Calif. Monday, January 10, 2022. (AP Photo/Rich Pedroncelli/AP Newsroom)
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While a windfall tax “might sound nice to the average person,” Flynn said, it would actually also reduce incentives and investment for oil companies and “strangle” their long-term viability. It could also impact people’s 401(K), he argued.
“If these companies aren’t making a profit, then who is investing in their oil stocks?” he said. “And if you have oil stocks in some part of your 401(k) — whether you know it or not, most Americans might not even know it — they’re taking money out of your 401(K) to pay for their bad policies, because those stocks aren’t going to do as well.”
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