Energy expert says California's windfall tax is a bad idea

Energy expert says California’s windfall tax is a bad idea

California’s imposition of a windfall tax on oil companies would be damaging, according to an energy expert who spoke to FOX Business.

California Democratic Governor Gavin Newsom on Friday called for a windfall tax to be levied on profits above a set amount for companies involved in oil extraction, production and refining. Funds raised by the tax would then be “directed toward rebates/refunds to California taxpayers impacted by high gasoline prices,” according to a press release from Newsom’s office.

“Crude oil prices are down but oil and gas companies have raised pump prices in California,” Newsom said in a statement. “We are not going to sit idly by while greedy oil companies swindle Californians.”

Gasoline price inflation in California

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)

The average regular gas price in California was $6.29 on Friday, according to AAA. This price is up 11.3% compared to the average price of $5.58 a week ago. Meanwhile, the national average regular gas price on Friday was around $3.80.

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Phil Flynn, a FOX Business contributor and senior market analyst at the Price Futures Group, said such a fallout tax would “further discourage investment in an industry that desperately needs capital to stay in business in a government environment. increasingly hostile. he said.

In April 2021, Newsom signed an executive order to stop oil extraction in California by 2045. Most recently, in August, the California Air Resources Board decided to require all new vehicles in the state to run to electricity by 2025, a Governor’s policy. previously asked regulators to take into account.

California Governor Gavin Newsom

California Governor Gavin Newsom (D) is seen in the United States Capitol rotunda after a meeting with House Speaker Nancy Pelosi, D-California, Friday, July 15, 2022. ((Tom Williams/CQ-Roll Call, Inc via Getty Images) / Getty Images)

“There’s this false perception — created in part by politicians — that energy companies are making too much money,” Flynn told FOX Business. “The truth is that their profits are higher than they have been in the past, but they fail to put that in perspective of how much these companies have to invest to supply the market, and that doesn’t take into account government regulations which have restricted supply which has also led to higher prices.This also ignores the fact that most of these energy companies in the past were losing money a few years ago barely.

Flynn told FOX Business that Newsom’s windfall tax is a “tool to shift the blame” onto oil companies “who are just trying to do their job and keep the market well supplied.” This would restrict supply and drive up prices in the long run, he said.

California Governor Gavin Newsom

California Governor Gavin Newsom unveils his proposed 2022-2023 state budget during a press conference in Sacramento, Calif., Monday, Jan. 10, 2022. (AP Photo/Rich Pedroncelli/AP Newsroom)

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While a windfall tax may “sound nice to the average person,” Flynn said it would also reduce incentives and investments for oil companies and “strangle” their long-term viability. It could also impact people’s 401(Ks), he argued.

“If these companies are not making a profit, who is going to invest in their oil stocks?” he said. “And if you have oil inventory in any part of your 401(k) – whether you know it or not, most Americans know it, they might not even realize it – they withdraw from it. money from your 401(K) to pay for their bad policies because those actions aren’t going to do as well.”

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