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Biden Threatens Big Oil With Windfall Profits Tax
President Joe Biden on Monday stepped up his pressure on major oil companies, accusing them of racking up record earnings by profiteering off the war in Ukraine. In a speech at the White House, Biden charged that the oil producers are neglecting their wartime responsibilities by refusing to take steps to lower prices at the pump for the American drivers — and he threatened to impose a tax on the companies’ excess profits if they don’t ramp up production.
The oil industry, Biden said, “has not met its commitment to invest in America and support the American people. One by one, major oil companies have reported record profits. Not just fair a return for hard work — every company is entitled to that, a fair return for work they do, innovation they generate. But I mean profits so high it’s hard to believe.”
Biden pointed to earnings results from Shell, which last week reported $9.5 billion in profits for the third quarter — more than twice as much as the same period a year ago — and ExxonMobil, which announced profits of $19.7 billion for the quarter, the highest in the company’s history and nearly triple what it earned in the same quarter a year earlier.
“In the last six months, six of the largest oil companies have made more than $100 billion,” Biden said. “I think it’s outrageous the size of the profits. … It’s time for these companies to stop war profiteering.”
Flanked by Treasury Secretary Janet Yellen and Energy Secretary Jennifer Granholm, Biden said that if the companies were making the average profit they had earned over the last 20 years and passed the rest onto consumers, the price of gasoline would come down by 50 cents a gallon. “Rather than increasing their investments in America or giving American consumers a break, their excess profits are going back to their shareholders and buying back their stock so executive pay is going to skyrocket. Give me a break. Enough is enough.”
The oil industry has been wary of Biden’s efforts to increase production, especially given the administration’s efforts to speed the transition to clean energy sources. The industry also argues that a windfall profits tax will only decrease domestic production. “Rather than taking credit for price declines and shifting blame for price increases, the Biden administration should get serious about addressing the supply and demand imbalance that has caused higher gas prices and created long-term energy challenges,” American Petroleum Institute CEO Mike Sommers said in a statement. “Oil companies do not set prices—global commodities markets do. Increasing taxes on American energy discourages investment in new production, which is the exact opposite of what is needed.”
In Exxon’s earnings call with analysts last week, CEO Darren Woods last week indicated that he has heard the calls to give drivers a break. “There has been discussion in the U.S. about our industry returning some of our profits directly to the American people,” Woods said, according to Bloomberg News. “That’s exactly what we’re doing in the form of our quarterly dividend.” Biden responded on Twitter: “Can’t believe I have to say this, but giving profits to shareholders is not the same as bringing prices down for American families.”
Gas prices have been drifting lower and now average $3.76 a gallon, down about four cents from a month ago but up 36 cents from a year ago, according to AAA.
Why it matters: With a week to go before Election Day, Biden and Democrats remain eager to demonstrate that they are working to address the high inflation that voters say in a top concern. But a windfall profits tax — an idea embraced by some key Democrats — would be extremely difficult to implement even if the president’s party retains control of Congress.
“Biden set out a promise that will be all but impossible to deliver,” Bloomberg’s Akayla Gardner, Jennifer A Dlouhy and Kevin Crowley write. “Many Democrats have unsuccessfully sought a so-called windfall profit tax for more than a decade. No such proposal is likely to pass the current Senate, evenly divided between Democrats and Republicans, and unless Biden’s party makes unexpected gains in next week’s elections, the GOP and centrist Democrats will be able to block it for the foreseeable future.”
Electric Cars Pose a Challenge to the Highway Trust Fund
It has been nearly 30 years since Congress raised the taxes that provide the Highway Trust Fund with money for repairs and construction, and critics have long complained that federal and state agencies lack the money they need to keep the country’s transit systems running properly. Now, in addition to inflation and improved efficiency, which reduce the real dollars that flow into the fund, transportation officials have to worry about electric cars, which threaten to push the Highway Trust Fund fuel tax revenues toward zero over the next decade or two.
The $1.2 trillion bipartisan infrastructure law passed last year provides $125 million in funding for states to develop tax systems that charge drivers based on the miles they travel rather than the fuel they purchase, as well as for a federal system that could coordinate the state systems.
But, as Roll Call’s Valerie Yurk reports, there has been little appetite among lawmakers to properly fund the Highway Trust Fund over the years, leaving the tax stuck at 18.4 cents per gallon of gasoline and 24.4 cents per gallon of diesel since 1993. As a result, Congress has repeatedly had to transfer funds from general tax revenues to keep the Highway Trust Fund solvent. And that doesn’t bode well for developing a new federal system.
Some states have raised their own fuel taxes, but experts say the increases are often not enough. “Between inflationary impacts on construction costs and the fact that there are more and more vehicles on the road that don't use gas … states are very much seeing this degradation of their revenue from the state gas tax,” Douglas Shinkle, transportation program director at the National Conference of State Legislatures, told Roll Call. “And a lot of transportation stakeholders recognize that a new kind of user fee source for these highly fuel-efficient or electric vehicles is needed.”
Paying by the mile: So far, three states – Oregon, Utah and Virginia – have created alternative programs to tax electric vehicles, in which drivers agree to have their mileage tracked. To sweeten the deal, annual registration fees are waived for those participating.
There are complications, of course. For example, what happens when a driver leaves the state? If only miles driven are being tracked, the driver will have to pay even for miles racked up in another state, which may not be participating in the program. Using GPS to track a car’s location can help, but also raises additional questions about privacy and state monitoring.
Another hurdle is how the federal government ultimately ties all the state systems together. Some states may prefer to use registration fees only to fund their road projects, while others deploy mileage taxes or some combination of the two. And what if some states decide to opt out, since the program is voluntary, at least for now?
“This is going to be one of the big questions, and the thought process at the moment is to give drivers and consumers more choices,” Shinkle told Roll Call. “The technical piece of these programs actually aren’t much of an obstacle — it’s more building public awareness and acceptance.”
Numbers of the Day
10.7%: Inflation hit a new record in October in the Eurozone, with the annual inflation rate coming in at 10.7% in the 19 nations that use the euro currency. The October data marks a significant increase from the 9.9% inflation rate recorded in September, and the highest rate in euro history starting in 1997.
Energy costs have played a major role in the price surge, as European countries wean themselves from Russian oil in the wake of the Ukraine invasion and increase their consumption of more expensive liquified natural gas. The largest inflation numbers were recorded in the small Baltic nations that share a border with Russia: Estonia (22.4%), Latvia (21.8%) and Lithuania (22%).
“The inflation outbreak has been an international phenomenon, sending price increases to near 40-year highs in the U.S. as well,” says David McHugh of the Associated Press.
22,510,593: As of Monday afternoon, more than 22.5 million early votes have been cast in the U.S. midterm elections, according to the United States Elections Project. “This is the make-or-break week for early voting,” University of Florida professor Michael McDonald, who oversees the Elections Project, tweeted. “If the past is a guide, the volume should pick up as people who tend to be younger and do not hold as strong partisan attachments make their choices and decide to vote.”
- Biden Warns Oil Firms He’ll Seek to Tax ‘Windfall’ Profits – Bloomberg
- Tremors in Treasury Bonds Worry Wall Street and Washington – Washington Post
- Senate Control Hinges on Neck-and-Neck Races, Times/Siena Poll Finds – New York Times
- Democrats Turn to Obama to Rescue Them From a Midterm Shellacking – Politico
- The Democratic Left Has a Problem With Gina Raimondo – Politico
- Kevin McCarthy, the Man in the MAGA Middle – New York
- Why the Fate of Medicare and Social Security Is a Midterm Issue – The Hill
- GOP Bracing for Trump Indictment Soon After Election Day – The Hill
- The Economy Remains Voters' Top Issue, With Abortion Following Closely Behind. Some Democrats Are Campaigning on How the Two Intersect. – Politico
- Ukraine Tells GOP It ‘Can’t Just Be About Guns’ – Politico
- Jerome Powell Is Popular. His War on Inflation Could Change That. – New York Times
- Inflation in Europe Reaches a Record 10.7% as Officials Face Hard Options – New York Times
- A Billing Expert Investigated Her Husband's ER Bill. She Was Able to Knock Thousands Off the Charge. – NBC News
- Aging Infrastructure May Create Higher Flood Risk in L.A., Study Finds – New York Times
Views and Analysis
- Curbing Inflation Comes First, but We Can’t Stop There – Lawrence H. Summers, Washington Post
- What Aren’t We Doing to Fix Inflation? – Emily Stewart, Vox
- The Two Words That Explain Why the Fed Might Tank the Economy – Aden Barton, Slate
- Do the Democrats Deserve Re-election? – Ezra Klein, New York Times
- Elections Aren’t Only About ‘the Economy, Stupid’ — and Never Were – Perry Bacon Jr., Washington Post
- Three Reasons Why Midterm Polls Could Be Wrong – Jonathan Bernstein, Bloomberg
- We Asked 10 Georgia Swing Voters What They Think About Herschel Walker – New York Times
- US Schools Have Two Years to Use or Lose Once-in-a-Lifetime Relief Funds – Bob Wise and Javaid Siddiqi, The Hill
- Appoint a Watchdog for Ukraine Aid – Bloomberg Opinion Editors
- The Crime Wave That Republicans Defend – David Dayen, The American Prospect
- A Plea for Making Virus Research Safer – Jesse Bloom, New York Times