The California Windfall Tax Is Not A Good Idea, Says An Energy Expert

An energy expert told FOX Business that imposing a windfall tax on oil companies in California would have negative consequences.

On Friday, California’s Democratic governor, Gavin Newsom, called for a windfall profit tax to be levied on oil companies’ profits above a certain threshold. The money from the tax would be “directed to rebates/refunds to California taxpayers impacted by high gas prices,” as stated in a press release from Newsom’s office.
Despite the decline in crude oil prices, Newsom claims that oil and gas companies have increased Californian gas prices. As the saying goes, “We won’t sit idly by while greedy oil companies rip off Californians.”

The California Windfall Tax Is Not A Good Idea, Says An Energy Expert
The California Windfall Tax Is Not A Good Idea, Says An Energy Expert

According to AAA, the statewide average price of regular gasoline in California was $6.29 on Friday. An increase of 11.3 percent from the previous week’s average price of $5.58, that price is now $6.02. On the other hand, the national average price of regular gas was around $3.80 on Friday.

According to Phil Flynn, senior market analyst at Price Futures Group and FOX Business contributor, this type of windfall tax would “further discourage investment in an industry that is desperately in need of capital to stay in business in an increasingly hostile governmental environment.”

Newsom signed an executive order to end oil drilling in California by 2045 in April 2021. The governor of California had asked state regulators to consider mandating that all new vehicles sold in the state be electric by 2025, and the California Air Resources Board did just that in August.

According to Flynn’s interview with FOX Business, “there’s this false perception – created in part by politicians” that energy companies are making too much money. “While it’s true that profits are up from years past, that fact is lost on those who don’t consider the substantial capital expenditures required to meet market demand, or the impact of government restrictions on production that have driven up prices. It also ignores the fact that most of these energy firms were actually losing money until relatively recently.”

Oil companies “that are just trying to do their job and keep the market well supplied,” Flynn said, calling Newsom’s proposed windfall tax a “tool to shift blame” to the industry. He predicted that supply constraints would lead to higher prices over time.

While Flynn conceded that a windfall tax “sounds nice to the average person,” he argued that it would “strangle” the long-term viability of the oil industry by reducing incentives and investments. He also worried about the effect on 401(k) plans.

Who is going to buy oil stocks from these companies if they aren’t profitable, he asked. And if you have oil stocks in your 401(k) (and most Americans do, even if they don’t know it), they’re taking money out of your 401(k) to pay for their bad policies because those stocks aren’t going to do as well.

Scroll to Top