Energy expert says California windfall tax is a bad idea

California implementing a windfall tax on oil companies would be harmful, according to an energy expert who spoke to FOX Business.

California’s Democratic governor, Gavin Newsom, on Friday called for a windfall profit tax to be imposed on profits above a set amount for companies involved in the extraction, production and refining of oil. The funds raised by the tax would then be “directed to rebates/refunds to California taxpayers impacted by high gas prices,” according to a news release from Newsom’s office.

“Crude oil prices are down, but oil and gas companies have raised prices at the pump in California,” Newsom argued in a statement. “We are not going to stand by while greedy oil companies fleece Californians.”

California gas price hike

A customer pumps gas into their car at a gas station on May 18, 2022 in Petaluma, California. ((Photo by Justin Sullivan/Getty Images) / Getty Images)

The average price of regular gas in California was $6.29 as of Friday, according to AAA. That price has increased 11.3% from the average price of $5.58 a week ago. Meanwhile, the average price of regular gas nationwide on Friday was around $3.80.

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

In April 2021, Newsom signed an executive order to end oil extraction in California by 2045. More recently, in August, the California Air Resources Board moved to require all new vehicles in the state to run on electricity by 2025, a policy the governor has. previously asked regulators to consider.

California Governor Gavin Newsom

California Gov. Gavin Newsom (D) is seen in the U.S. Capitol Rotunda after a meeting with House Speaker Nancy Pelosi, D-Calif., 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 somehow 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 into the perspective of how much these companies have to invest to bring supply to market, and that fails to take into account the public regulations that has limited supply, which has also pushed prices higher. It also doesn’t take into account that most of these energy companies were previously losing money just a few years ago.”

Flynn told FOX Business that the windfall tax Newsom called for is a “tool to shift the blame” onto oil companies “that are just trying to do their jobs and keep the market well supplied.” That would limit supply and drive prices up in the long run, he said.

California Governor Gavin Newsom

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

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While a windfall tax might “sound nice to the average person,” Flynn said it would actually also reduce incentives and investment for oil companies and “stifle” their long-term viability. It could also affect people’s 401(K)s, he argued.

“If these companies don’t make a profit, who will invest in their oil stocks?” he said. “And if you have oil stocks in part of your 401(k)—whether you know it or not, most Americans do, they may not even realize it—they’re taking money out of your 401(k) to pay for their bad policies because these stocks won’t do so well.”

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