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 with FOX Business.

Democratic California Gov. Gavin Newsom on Friday called for a windfall profit tax to be levied on the profits above a set amount for companies involved in the extraction, production and refining of oil. The funds collected by the tax would then be "directed to rebates/refunds to California taxpayers impacted by high gas prices," according to a press release from Newsom's office. 

"Crude oil prices are down but oil and gas companies have jacked up prices at the pump in California," Newsom claimed in a statement. "We're not going to stand by while greedy oil companies fleece Californians."

The average price for regular gas in California was $6.29 as of Friday, according to AAA. That price is up 11.3% from the $5.58 average price a week ago. Meanwhile, the average price for regular gas nationwide Friday was roughly $3.80.

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Phil Flynn, a FOX Business contributor and senior market analyst at the Price Futures Group, said such a 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." he said.

In April 2021, Newsom signed an executive order aiming to halt 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 operate on electricity by 2025, a policy the governor previously asked regulators to consider.

"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 their profits are higher than they have been in the past, but they fail to put it into the perspective of how much these companies have to invest to bring supply to the marketplace, and it fails to take into account the government regulations that have restricted supply that have caused the prices to go higher as well. It also doesn’t take into account that most of these energy companies in the past were losing money just a few years ago."

Flynn told FOX Business the windfall tax Newsom called for is a "tool to shift blame" onto oil companies "that are just trying to do their job and keep the market well supplied." It would restrict supply and make prices rise in the long run, he said.

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While a windfall tax may "sound nice to the average person," Flynn said it actually would also reduce incentive and investment for oil companies and "strangle" their long-term viability. It could also impact people's 401(K)s, he argued.

"If these companies aren't making profits, who's going to 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 might not even realize – 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." 

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