By Rowan Saydlowski
In a speech earlier this month, United Nations Secretary-General António Guterres called on “all governments” around the world to increase taxes on energy companies, a policy which would only exacerbate the current energy price spike.
At the launch of the third brief of the UN’s Global Crisis Response Group on Food, Energy and Finance, Guterres asserted that the profits of oil and gas companies are “immoral.” He urged “all governments to tax these excessive profits” and to use the tax revenue to “support the most vulnerable people.”
The Secretary-General’s comments mirror proposals by Senator Elizabeth Warren (D-Mass.) in the United States and Chancellor Rishi Sunak in the United Kingdom to implement a so-called “windfall tax” on profits which have already been earned by energy companies. Though Warren’s proposal has yet to make its way through Congress, earlier this year Sunak announced that the UK will indeed be placing an additional 25 percent tax on the profits of oil and gas companies at a time when gas prices for consumers are already soaring.
Energy windfall taxes, as requested by Guterres, would lead to even higher energy costs for consumers as companies pass on the tax burden in the form of higher prices. In the United Kingdom, gas prices rose sharply following Sunak’s announcement and still remain around $8.00 USD per gallon today. U.S. gas prices continue to sit at historically high prices even before passing a windfall tax, as is the case in many other nations.
Windfall profits taxes also discourage domestic production and investment by increasing the marginal costs of production. The result of this lower domestic production is a greater reliance on foreign imports, made even more perilous now that numerous countries including the United States and United Kingdom have begun phasing out Russian oil imports due to Putin’s war in Ukraine.
In the U.S., the Jimmy Carter Administration already provided a case study into the harmful effects of windfall taxes. In 1980, President Carter signed the Crude Oil Windfall Profits Tax Act, which imposed a 70% excise tax on oil sale prices exceeding $12.81 per barrel ($43.71 in 2022 dollars), according to the Tax Foundation. The Congressional Research Service found that Carter’s windfall profits tax on the oil industry reduced domestic oil production by as much as 8% and caused U.S. dependence on imported oil to increase by as much as 13% from 1980-1988. The tax was finally repealed in 1988 by a Democrat-led House and Senate.
Perhaps worst of all, while Secretary-General Guterres’s rhetoric is focused on “support[ing] the most vulnerable people,” his proposal would hurt vulnerable populations most of all. The data consistently show that higher gas prices and higher gas taxes disproportionately hurt the poor, who already spend a higher percentage of their total income on energy as compared to more wealthy consumers. Guterres’s call for windfall taxes would only intensify this disparity.
Countries should reject the Secretary-General’s dangerous proposal in order to avoid exacerbating runaway inflation and avoid further harm to the most vulnerable among us.