On Tuesday’s broadcast of CNN’s “Situation Room,” Harvard Professor, economist, Director of the National Economic Council under President Barack Obama, and Treasury Secretary under President Bill Clinton Larry Summers criticized President Joe Biden’s threatened windfall profits tax on oil and argued that it “would discourage investment in oil, which would ultimately mean higher oil prices.” And that as we’re working out of “some of the problems that were created by an excess of hostility to hydrocarbons a couple of years ago” that has decreased the energy supply, “now we’re taking another hostile to hydrocarbons act.”
Summers stated, “I think the fear is that if we establish that whenever the price of oil went up substantially, we were going to impose windfall profits taxes, the incentive in being able to drill for oil would be diminished because you wouldn’t feel like when the best case for you happened and your oil was really needed, you wouldn’t feel like you could reap the full reward of it. So, I think it would discourage investment in oil, which would ultimately mean higher oil prices. I also think that — I think that’s the important effect. I think there’s a secondary effect that if you reduce the cash flow of those businesses, less cash flow in is probably going to mean less investment out. But I think the important thing is that any time you tax something or signal that you’re going to tax something in the future, you discourage people’s incentive to produce it. And I think we’re just working our way out of the problems that were created — some of the problems that were created by an excess of hostility to hydrocarbons a couple of years ago and if there hadn’t been that excess hostility, we’d probably have some more hydrocarbons today and now we’re taking another hostile to hydrocarbons act.”
He concluded, “Though I certainly share the frustration that there are not more hydrocarbons being produced in the United States, I think that’s a proper area for dialogue with the federal government, but I suspect a certain amount of it has to do with permitting and regulation and I really don’t see how the windfall profits tax would help.”
Follow Ian Hanchett on Twitter @IanHanchett
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