Some Democrats want to tax Big Oil’s windfall. This economist says it could backfire

By Matt Egan, CNN

The White House has kept the door open to a windfall profit tax on Big Oil but economist Mark Zandi is warning such a move could backfire.

“I would not be supportive,” Zandi, the chief economist at Moody’s Analytics, told CNN in a phone interview. “You want energy companies to invest in increased supply and put more rigs in the ground. They do that because they can make money.”

Zandi said such a move would not be “good economics” and added that oil and gas companies are not price gouging.

Some Democrats, including most recently Sen. Ron Wyden, have floated windfall profit taxes on oil and gas companies as a way to help consumers grappling with record-high gas prices — though passing such legislation could be an up-hill battle.

Earlier this month, Bharat Ramamurti, deputy director of the National Economic Council, criticized Big Oil for banking huge profits in the wake of Russia’s invasion of Ukraine, which the Biden administration has blamed for soaring gas prices.

“It’s outrageous that oil and gas companies are able to take advantage and make four times the profits that they made when there wasn’t a war,” Ramamurti told CNN in a phone interview.

“It would discourage investment, not only because energy companies would have less profits to invest, but more importantly it creates a significant amount of uncertainty with regard to future profitability,” Zandi told CNN. “It would make them much less likely to invest in the long run.”

Zandi, who was an adviser to John McCain’s 2008 presidential campaign and supported Hillary Clinton in the 2016 presidential election, said he understands why frustrated politicians are searching for solutions. “Lower and middle income Americans are getting crushed by higher gas prices,” he said.

But Zandi added, “Do no harm should be the first principle.”

His criticism echoes that of former Obama economist Jason Furman, who recently told CNN’s Poppy Harlow that Democrats are “barking up the wrong tree” with certain price gouging proposals.

“If you punish companies every time that they are in this situation, it will make them not want to expand capacity in the same type of way,” Furman said.

Last week, Wyden, who chairs the Senate Finance Committee, floated a 21% surtax on the excess profits of oil and gas companies that generate more than $1 billion in revenue.

“Our broken tax code is working for Big Oil, not American families,” Wyden said.

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