The Biden Administration is apparently seeking ways to ease rising energy costs. The Associated Press reports that the White House has called on OPEC to boost production of oil. An administration official was quoted, saying "Higher gasoline costs, if left unchecked, risk harming the ongoing global recovery." If the White House wants to address rising energy prices, it should rethink its own policies.
One of the earliest actions of this administration was to cancel the XL Pipeline. This project had been in development for over a decade and was intended to transport crude oil from Canada for storage in the U.S. The pipeline would have been a more economical way of transporting the oil instead of by trucks or container ships. It was also expected to support 11,000 U.S. jobs generating $1.6 billion in gross wages. In addition, the administration suspended leases that had been granted under President Trump for oil drilling in the Arctic National Wildlife Reserve.
The administration also plans to directly increase energy costs. Biden's own budget proposal also seeks to hit the oil sector with $35 billion in new taxes, targeting various cost recovery, expensing, and amortization provisions. In general, these types of provisions allow businesses to deduct costs when calculating their net income. As NTUF explained in 2019, extracting and producing energy is cost intensive. Provisions allowing for cost recovery help account for higher capital costs, and thus generally aren’t “subsidies” but are more akin to ordinary credits and deductions that apply to other industries. Repealing these provisions would make it more expensive to produce oil in the U.S. and reduce the supply available for domestic consumption.
On top of that, Biden and the Democrats hope to increase the corporate tax rate from 21 percent to 28 percent which will have broader negative consequences for wages, jobs, and prices across the economy. The Tax Foundation estimates this would lead to a cumulative GDP loss of nearly $720 billion over 10 years.
The administration has also decided to maintain tariffs (i.e., taxes on trade) on steel and aluminum imports and has proposed new tariffs on rare-earth material from China. CBO has warned that these trade barriers will also take a bite of the GDP.
If these tax hikes go into effect, prepare for higher costs across the board, not just for energy.