Democrats Propose Windfall Tax on Big Oil, With Proceeds Rebated to American Taxpayers

On Friday, Rep. Ro Khanna of California filed a bill that would tax the profits of the country's largest oil producers and importers and send the money back to American households. He had announced the plan with colleagues earlier in the week. The legislation is a response to gas prices that were already climbing before Russia invaded Ukraine and tightened global supply.

The bill is called the Big Oil Windfall Profits Tax. Khanna wrote it with Sen. Sheldon Whitehouse of Rhode Island, both Democrats. It would impose a 50% tax on each barrel, applied to the gap between the current price of a barrel of oil and the average price per barrel from 2015 through 2019. Smaller energy companies would be exempt.

The lawmakers behind the plan estimate it would raise about $45 billion a year if oil sells at $120 a barrel. At that price, they say, the money would fund annual rebates of $240 for a single filer earning less than $75,000 and $360 for joint filers earning less than $150,000.

Khanna argued that the tax would give energy companies a reason to hold prices down. He framed the issue around profits. "As Russia's invasion of Ukraine sends gas prices soaring, fossil-fuel companies are raking in record profits," he said, adding that the companies have made billions and used the money to enrich their own shareholders while average Americans feel the pain at the pump.

Support so far is narrow. About a dozen Senate Democrats back the bill, as do two House Democrats, Barbara Lee and Nanette Barragán, both of California. No Republicans have signed on.

The American Petroleum Institute, the industry's top lobbying group, criticized the plan. Lawmakers, it said, should pursue policies that increase the nation's supply rather than ones that discourage investment. "The American people are looking for solutions, not finger pointing," said Frank Macchiarola, the group's senior vice president of policy, economics and regulatory affairs.

Thornton Matheson, a senior fellow at the nonpartisan Urban Institute, described a trade-off. The tax could push energy prices up, she said, because production would become less profitable and imports would cost more. Even so, she said, families could still come out ahead because of the annual payments.

The idea has a history. Congress has turned to windfall profit taxes, which tax a business's profits above a set benchmark, when gas prices have jumped before. Federal lawmakers enacted one in 1980 and kept it for eight years, repealing it once prices fell. In 2008, with gasoline at $4 a gallon, Democrats considered such a tax on oil companies to pay for alternative-energy projects. Barack Obama, then a senator and presidential candidate, supported it, and John McCain opposed it. The oil industry said the proposals would not lower gas prices, and the legislation died.

The question now is whether this bill can attract any Republican support or move forward at all, given that the most recent comparable effort ended without passage.