Soaring profits at the big oil and gas companies are again making headlines. Combined, Shell, Exxon, and Chevron reported $41 billion in profits for the second quarter of 2022 – record setting figures. Profits in the oil and gas industry are up 235% from a year ago. Meanwhile, almost half of the increase in “inflation” over the past few months has been due to soaring gasoline prices.
(Note: If you find my posts too long or too dense to read on occasion, please just read the bolded portions. They present the key points I’m making and the most important information I’m sharing.)
The companies’ executives indicated that they plan to spend those profits on buying up their own stock (on top of $19 billion already spent on buybacks this year). This enriches shareholders and executives. The executives do NOT plan to reinvest those profits in their companies, for example to expand production or refinery capacity, or invest in modernization, research, and development. This underscores that these record profits from record high gasoline prices are price gouging and a huge transfer of money from the pockets of working Americans to the wealth of rich shareholders and corporate executives.  The oil and gas companies did used some of their huge profits – $200 million last year – to influence policy makers in Washington, D.C.
Price hikes and price gouging are not occurring just in the oil and gas industry, however. Overall, U.S. corporate profits are at their highest level since the 1950s. Markups – the difference between the actual cost of producing a good or delivering a service and the price charged the consumer – are at the highest level on record and saw their largest year-to-year increase in 2021. As a result, as U.S. companies increased their prices, their profit margins jumped from an average of 5.5% from 1960 to 1980, to 9.5% in 2021.  (See this previous post for more evidence that much of the current “inflation” is price gouging.)
All of these price hikes have created the highest “inflation” in 40 years. The primary measure of inflation that the Federal Reserve uses, the personal consumption expenditures (PCE) price index, was up 6.8% over prices a year ago. Excluding typically volatile food and energy, the so-called core PCE, was up 4.8% over the last year.
The Federal Reserve likes to see inflation at 2% and historically has used interest rate increases to slow down the economy and reduce inflation. This approach works by slowing consumer buying and business expansion by increasing the cost to borrow money for these purposes. This slows business growth and therefore the need for employees. This increases unemployment and reduces wage increases needed to hire or keep employees. This reduces businesses’ labor costs and their need to increase prices to pay their workers. Hence, price increases, i.e., inflation, are reduced.
The Federal Reserve has increased its key interest rates (which is what it charges financial institutions) by a hefty 1.5% over the last two months, from a range of 0.75% – 1.0% to 2.25% – 2.5%. This is the most aggressive increase in rates in 30 years. There are already signs that economic growth, gasoline price increases, and wage increases have slowed. The economy overall actually shrank a bit in each of the last two three-month periods.
Many economists are worried that the Federal Reserve is raising interest rates too aggressively and that a recession will be the result. Our economy is in an historically uncharted situation. The Covid pandemic has resulted in unprecedented changes in the global economy, in work and the workforce, and in supply chains. On top of this, climate change is affecting food production and natural disasters (from droughts to wildfires to storms) in ways not previously seen. And the war in the Ukraine is disrupting the global economy, especially supplies of and prices for food and fossil fuels, in ways never experienced before.  Finally, the widespread presence of huge, monopolistic corporations with the power to increase prices and profits has not been seen for 100 years. 
All of this suggests that the Federal Reserve’s effort to fight inflation with interest rate increases is not likely to work as it has in the past. Interest rate increases are not effective in controlling the drivers of today’s inflation. Federal Reserve Chairman Powell was asked by Senator Warren at a recent congressional hearing if he thought interest rate increases would bring down food and gas costs and he replied, “ I would not think so, no.” 
A recession, if the Federal Reserve triggers one, would increase unemployment and disproportionately hurt lower-wage employees and workers of color. It would also negatively affect the world economy and have major impacts on poor countries globally.
President Biden has appealed to oil and gas company executives and foreign leaders to increase production and reduce prices. They have refused. So, what’s needed to rein in inflation, curb corporate price gouging, and help consumers deal with high inflation is a windfall profits tax, as was done in 1980. A tax on excessive profits would make price gouging less attractive to companies and provide the government with revenue that could be used to assist families suffering from the effects of inflation and to invest in the transition from fossil fuels.
Multiple countries have already implemented windfall profits taxes. Britain’s Conservative government has implemented a 25% windfall profits tax on oil and gas companies. It will use the $19 billion in revenue generated to support low-income households struggling due to inflation. Italy raised its 10% windfall profits tax to 25% and will use the revenue to subsidize households’ energy costs. Spain implemented a windfall profits tax back in September 2021; Romania and Bulgaria have windfall profits taxes. All of them are using the revenue to provide inflation relief to working people. (See this previous post for more on tackling inflation and its effects.)
Bills in Congress would put a windfall profits tax on oil and gas companies. Senator Bernie Sanders has introduced legislation that would put such a tax on a broader range of companies.  Eighty percent (80%) of U.S. voters support a windfall profits tax. 
I encourage to you contact President Biden and your Representative and Senators in Congress. Tell them you support a windfall profits tax on companies that are price gouging, like the big oil and gas companies. You can email President Biden at http://www.whitehouse.gov/contact/submit-questions-and-comments or you can call the White House comment line at 202-456-1111 or the switchboard at 202-456-1414. You can find contact information for your U.S. Representative at http://www.house.gov/representatives/find/ and for your U.S. Senators at http://www.senate.gov/general/contact_information/senators_cfm.cfm.
 Corbett, J., 7/29/22, “Price gouging at the pump results in 235% profit jump for big oil: Analysis,” Common Dreams (https://www.commondreams.org/news/2022/07/29/price-gouging-pump-results-235-profit-jump-big-oil-analysis)
 Johnson, J., 6/21/22, “Study shows excess corporate profits in the US have become ‘widespread’,” Common Dreams (https://www.commondreams.org/news/2022/06/21/study-shows-excess-corporate-profits-us-have-become-widespread)
 Lehigh, S., 7/20/22, “A Nobel laureate’s polite plea to the Fed: Go slowly in fighting inflation,” The Boston Globe
 Reich, R., 6/16/22, “The Fed is making a big mistake,” (https://www.youtube.com/watch?v=4xcrdDnDR-c)
 Johnson, J., 7/25/22, “Elizabeth Warren accuses Fed Chair of fomenting ‘devastating recession’,” Common Dreams (https://www.commondreams.org/news/2022/07/25/elizabeth-warren-accuses-fed-chair-fomenting-devastating-recession)
 Corbett, J., 7/29/22, see above
 Johnson, J., 6/15/22, “With US consumers ‘getting fleeced,’ Democrats demand windfall profits tax on big oil,” Common Dreams (https://www.commondreams.org/news/2022/06/15/us-consumers-getting-fleeced-democrats-demand-windfall-profits-tax-big-oil)j