Biden’s oil tax hike could make fuel even more expensive

WASHINGTON — Facing political pressure over rising gasoline prices, President Joe Biden has ordered unprecedented releases from the Strategic Petroleum Reserve while at the same time proposing historic tax hikes on the oil and gas industry that experts say could curb production.

The tax increases on energy are part of a $2.5 trillion package of revenue-generating measures unveiled last week in Biden’s $5.8 trillion budget blueprint that boosts domestic spending.

Many of the tax hikes were contained in the Build Back Better bill that imploded in the Senate last year.

Tax increases in his proposed budget for fiscal year 2023, which begins Oct. 1, have already met opposition in Congress from lawmakers who represent fossil fuel producing areas.

Just one day after he laid out his budget and tax plan, Biden announced the release from the nation’s oil reserves.

He used that announcement to harden his line on energy companies that he accused of failing to increase production from leases held for drilling on public lands.

“It’s not time to sit on record profits,” Biden said. “It’s time to step up for the good of your country.”

Taxes preventing production

But oil industry officials say the taxes and fees that Biden has proposed would eliminate the capital and investment to increase domestic production in a high-risk industry where not every gamble pays off.

“The best thing the White House can do right now is to remove barriers to investment in American energy production and infrastructure,” said Mike Sommers, president and chief executive officer of the American Petroleum Institute.

Sommers called the president’s order to release more reserves, and his criticism of the industry, “more mixed signals about developing affordable, reliable and secure American natural gas and oil.”

Releasing more U.S. oil into the global market is expected to lower prices at the pump in the short term, although the daily amount over a six-month period equals only about 1 percent of worldwide consumption and 5 percent of U.S. daily use.

Analysts agree that would help lower the price of gasoline in the short term.

Gas has risen to an average of $4.24 a gallon last week, according to the American Automotive Association. Prices in Nevada have skyrocketed to an average of $5.25 a gallon last week, according to AAA.

Industry analysts said replenishing the reserves could be hindered if domestic production is curtailed by factors that include increased taxes on the oil and gas industry.

Biden defended his proposed tax hikes as needed to help “clean up the fiscal mess I inherited,” a dig at the Trump administration tax cuts that Biden said allowed “billionaires and large corporations (to get) richer than ever.”

Presidential budgets have historically served as markers for Congress, which writes tax and spending legislation that often bears little resemblance to the original White House proposal.

Taxing oil and gas

Biden has proposed 11 tax hikes on the oil and gas industry, raising the corporate tax rate, boosting the top income bracket to nearly 40 percent, doubling the capital gains rate and imposing a second death tax, according to conservative-leaning group Americans for Tax Reform.

The tax hikes on the oil industry come as Biden has called on foreign and U.S. companies to increase production to offset the loss of Russian oil and gas due to sanctions over the invasion of Ukraine.

The American Petroleum Institute and other fossil fuel industry experts said the tax hikes would hinder production, eliminating tax breaks for marginal wells and deductions for intangible drilling costs, known as the IDC tax provision.

“While the administration has said in recent weeks that in this moment of crisis we need more oil and gas supply, they are now proposing to eliminate an IDC tax provision that is specifically designed to attract investment in oil and natural gas development and is similar to tax provisions industries across the economy receive,” said Frank Macchiarola, the petroleum institute’s senior vice president for policy, economics and regulatory affairs.

“We again call on the Biden administration to adjust their policies to match their rhetoric,” Macchiarola told the Review-Journal in a statement.

Rep. Jim Banks, R-Ind., with the House Republican Study Committee, said the $43 billion in tax hikes on the oil and gas industry would increase the price at the pump in the long term.

“Working families can’t afford Joe Biden’s war on American energy,” Banks said.

The White House has blamed an increase in fuel demand on the economic expansion after the pandemic.

Alleged price gouging

House and Senate Democrats, meanwhile, have accused big oil companies of using events in Ukraine to run up costs at the pump and of price gouging before the invasion occurred.

Three chief executive officers from oil companies declined to appear before a House Natural Resources Committee hearing scheduled for this week to examine investor pressure and business strategy in the rise of gas prices.

Chairman Raul Grijalva, D-Ariz., said as gas prices started rising “fossil fuel industry trade groups and their allies in Congress wasted no time in placing blame on the Biden administration and pushing for a drilling free-for-all.”

“But when you look at oil companies’ record profits, these claims don’t add up,” Grijalva said.

Executives were called to testify about three companies — EOG Resources, Devon Energy Corp., and Occidental Petroleum — which collectively hold 4,000 leases and 2,800 unused drilling permits on federal lands.

Those companies reported $9 billion in profits over the past year, while EOG paid $28 million in bonuses to five executives, according to Accountable.US, a corporate watchdog group. Grijalva produced investor notices from the companies that outlined their intentions not to increase production.

Pushing for green energy

Meanwhile, the Biden budget continues the administration’s push toward clean energy, with tax incentives for renewable energy and electric vehicles.

Biden included $254 million to accelerate renewable energy production — solar, wind and geothermal — on public lands in states that include Nevada.

Those expenditures in the budget were praised by environmental groups that have embraced the Biden administration’s plan to reduce America’s carbon footprint and reliance on fossil fuels.

The taxes will receive close scrutiny as Congress begins the process this month of examining administration proposals and writing annual spending and tax legislation.

The budget calls for a “billionaire tax,” which would establish a minimum 20 percent income tax on families with income and assets worth more than $100 million. Biden said the tax would force the ultra-rich to pay “their fair share.”

Corporate tax rates also would rise to 28 percent under the Biden proposal — a rate higher than that “in communist China,” according to Americans for Tax Reform.

The current tax rates on wealthy Americans and corporations were slashed under the Trump administration and the GOP-controlled Congress in 2017. The Biden budget proposals would roll back the GOP-passed tax breaks.

But Republicans argue that the Biden proposals are not without pain to the middle class.

A proposed raise in the top income bracket for taxes from 37 percent to 39.6 percent would hurt small businesses, according to Americans for Tax Reform.

And a doubling of the capital gains and a death tax would negatively affect family farms and businesses, the conservative tax group contends.

But Republicans also have advanced a tax reform proposal by Sen. Rick Scott, R-Fla., dubbed “skin in the game” that would impose income taxes on all Americans and eventually phase out health care entitlement programs.

That proposal would raise income taxes on 40 percent of the poorest Americans by an average of $1,000, according to the left-leaning Institute on Taxation and Economic Policy. In Nevada, 32.6 percent of residents would see a tax hike.

Scott’s 11-point plan would raise more than $100 billion in 2022, but 80 percent of those revenues would come from families making $54,000 or less, and 97 percent would come from those earning under $100,000 a year, according to the left-of-center Tax Policy Center.

The tax hikes proposed by Biden, and Scott, the chairman of the National Republican Senatorial Committee, come in the midst of an election year in which control of the evenly divided Senate is at stake.

Contact Gary Martin at gmartin@reviewjournal.com. Follow @garymartindc on Twitter.