Economist Mark Zandi: Windfall tax on big oil companies could backfire

“I wouldn’t be supportive,” Zandi, chief economist at Moody’s Analytics, told CNN in a phone interview. “You want energy companies to invest in increased supply and put more rigs in the ground. They do it because they can make money.”

Zandi said such a move would not be “good economics” and added that oil and gas companies do not price abuse.

Some Democrats, most recently including Senator Ron Wyden, have imposed windfall taxes on oil and gas companies to help consumers cope with record gasoline prices — though the passage of a such legislation can be an uphill battle.
Earlier this month, Bharat Ramamurti, deputy director of the National Economic Council, criticized Big Oil for taking huge profits from the Russian invasion of Ukraine, which the Biden administration has blamed for the skyrocketing gas prices.

“It’s outrageous that oil and gas companies can take advantage of this and make four times the profits they made when there was no war,” Ramamurti told CNN in a phone interview.

“It would discourage investment, not only because energy companies would have less profit to invest, but more importantly, it would create significant uncertainty about future profitability,” Zandi told CNN. “That would make them much less likely to invest for the long term.”

Zandi, who served as an adviser during John McCain’s 2008 presidential campaign and backed Hillary Clinton in the 2016 presidential election, said he understands why frustrated politicians are looking for solutions. “Low- and middle-income Americans are being crushed by rising gas prices,” he said.

But Zandi added: “Do no harm should be the first principle.”

His criticism echoes that of former Obama economist Jason Furman, who recently told CNN’s Poppy Harlow that Democrats are “barking up the wrong tree” with some price gouging.

“If you punish companies every time they find themselves in this situation, it will prevent them from increasing their capacity in the same way,” Furman said.

Last week, Wyden, who chairs the Senate Finance Committee, imposed a 21% surtax on the excess profits of oil and gas companies that generate more than $1 billion in revenue.

“Our broken tax code works for big oil companies, not for American families,” Wyden said.

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