Who is winning the Russian war on Ukraine? Not Russia; not Ukraine. But there is already one big winner: U.S. oil companies.
Of course, these companies have been winning for a long time, but they are getting a bonus infusion of profits this month. Exxon stock price has increased 29 percent since the turn of the year. Chevron stock has increased 37 percent. ConocoPhillips’ has increased 40 percent. For comparison, the S&P 500 has fallen 7 percent since the beginning of the year, the Dow Jones Index has fallen 5 percent and the NASDAQ Composite has lost 12 percent of its value. Year to year, Exxon’s net income of $8.87 billion for 2021 rose by 144 percent.
And that was before the Russians invaded Ukraine.
It is absolutely the right move to stop buying Russian oil. But we shouldn’t just ignore the windfall profits this creates for U.S. oil companies, as gasoline prices go up and up. A year ago, the price of a gallon of regular gas in Seattle was $3.46. A month ago, it was $4.16. Today, March 21, it is $4.89. That is an 18 percent increase in one month and a more than 40 percent increase in a year.
With these increases, according to Robert Reich, a former secretary of the U.S. Department of Labor, Big Oil plans to buy back its own stock — at least $22 billion this year. That just enriches the top oil executives and investors on Wall Street with income redistribution from low-income and middle-class families to those who already possess extreme wealth — our own oligarchs.
We experienced something like this 15 years ago in the aftermath of Hurricane Katrina, when gas prices shot up and oil companies reaped windfalls from American consumers. In response to that, then-Representative and now Washington Sen. Bob Hasegawa introduced a bill to cleverly tax excess profits of Big Oil and reinvest in renewable energy and energy conservation. This bill, “concerning community reinvestment of oil windfall profits,” would have put in place an automatic brake on price hikes for gasoline with big disincentives for and penalties on oil companies that were realizing windfall profits.
This bill began with the state’s average gasoline rate in 2010 of $1.75 a gallon. That’s equivalent to $2.28 today. If gas prices stayed at the rate, there would be no windfall profits tax. If prices went up 10 cents a gallon, the oil companies that refine or market — or both — in Washington state would pay a 2 percent tax on their profits, as these are proportioned to Washington state. If prices went up 20 cents, they would pay a 12 percent surtax, and if prices went up 30 cents, they would pay a 14 percent surtax. If prices went up a dollar, the oil companies would be paying a 30 percent surtax on their profits.
If we start with the average price of gasoline at the beginning of this year — $3.91 — and calculated the windfall profits tax from there, it would be 28 percent of profits allocated to Washington state. That is both a big disincentive for oil companies to raising prices and, failing that, a strong source of revenue for our state to invest in green energy.
In 2010, the legislature’s fiscal note predicted a $400 million revenue stream from this tax each biennium. With the way gas prices have doubled since then, our state would reap easily $500 million a year through this excess profits tax.
We could use this revenue to place solar panels on all public buildings as well as residences that want to participate in the green economy. We could also insulate these residences and public buildings, saving electricity and making us less vulnerable to climate change, summer heat and winter freezing. We could inject public investments into our own solar panel manufacturing in the state, making us less vulnerable to global disruptions of the supply system. We could make up for the legislature’s failure this session to expand the Working Families Tax Credit by funding an expansion of that tax credit to ensure that both low income and middle class families get a bit of an economic boost to enable them to keep up with inflation.
Or we could do nothing…
With the legislative session finished, there won’t be much of an appetite for a special session to pass a windfall profits tax on Big Oil. Of course, they did do this for Boeing, with a two-day session in 2013 that handed Boeing $8 billion. Perhaps the legislature and the governor could consider a special session that would put a brake on gasoline prices and help the people of our state with investments from a windfall profits tax on Big Oil.
Doing nothing means that gas prices will go up and up, the citizens of our state will get squeezed more and more, our earned money will flow out to the global oil giants and we will be hard pressed to move forward investing in a green economy. A day or two of inconvenience for legislators in a special session to tackle Big Oil presents a much better future for all of us.
Read more of the Mar. 23-29, 2022 issue.