The battle against inflation has been raging worldwide for several months, but in the United States only the Federal Reserve Board appears to have any serious plan for addressing the economic fallout. Depending on manipulating interest rates alone, however, is not likely to restore sanity and stability to our economy. It also poses a serious threat to the quality of life for the great majority of Americans who have uncertain incomes and precious little wealth.
While President Joe Biden has acknowledged the legitimacy of the Federal Reserve Board’s role in seeking to rein in inflation, he has also suggested several measures that could have some impact on the problem. Unfortunately, his power is limited by the nation’s constitutional structure.
Biden’s call for a three-month suspension of gasoline taxes has fallen on deaf ears in Congress, not that it ever had much of a chance for success. Naturally, Mitch McConnell and his Republican lemmings in the US Senate have been dismissive, but the president also has gotten blowback from some Democrats. The partisan division in the Senate does not allow the president any opportunity for negotiation.
Since the federal government charges only 18 cents per gallon of gasoline and 24 cents per gallon of diesel, suspension at the federal level alone would not have a significant impact. Every state also imposes a gasoline tax, which ranges from 0.0895 per gallon in Alaska to 0.5776 per gallon in Pennsylvania.
One of the goals of the founding fathers was to create a “national” economy. We’ve pretty much blown that notion.
Biden could only urge state governments to provide relief at the pump also. Some states already had moved to suspend their gasoline taxes, only partially in some cases, but many state legislatures are out of session for the year and are not likely to return before January. Given the fact that most states (27) impose a levy of between 0.20 cents per gallon to 0.31 cent a gallon, even if all states complied with Biden’s request, the impact would be very modest.
Biden has also attempted to persuade corporate leaders in the oil and gas industry to assume some responsibility for reducing the price at the pump. The petroleum barons have responded with their usual arrogance and callousness.
At first, they blamed Biden for the gasoline price hike, claiming the administration was dragging its feet on opening federal lands to new oil and gas leases. That canard fizzled when it was pointed out that companies currently are holding 9,000 leases to federal lands that have never been developed. The chair of the US House Natural Resources Committee, Raul Grijalva (AZ-D), in a comment on Biden’s plan for offshore drilling noted that the oil and gas companies already hold 8 million acres in leases of offshore waters that have not been developed.
Next, the companies asserted that domestic refineries lack capacity for additional production of gasoline. Truth is no new refineries have been built in the US in the last 45 years, and in recent months several companies have decided to shut down existing refineries for various reasons.
This is responsible for a significant shortfall in gasoline availability according to John Cassidy, an economics journalist writing in the NewYorker in May. Prior to the pandemic in 2020, US oil companies produced about 13 million barrels of crude a day, while in April 2022, they produced less than 11.9 million barrels a day, Cassidy discloses.
Biden has attempted to reduce the gap by withdrawing one million barrels per day from the finite resources of the Strategic Petroleum Reserve, but the petroleum oligarchs have refused to invest in even maintaining the nation’s refining capacity, electing instead to rev up stock buybacks to reward their investors, and of course themselves.
Exxon has announced plans for $30 billion in buybacks by the end of 2023, and Chevron plans to devote $10 billion to buybacks. As Cassidy revealed in the NewYorker, in the first three months of 2022 Chevron chalked up $6.3 billion in profits, ConocoPhillips reported $5.8 billion, and Exxon accumulated $5.4 billion. Despite the fact that some of the pressure on gasoline prices is the result of efforts to prevent Russian aggression against the Ukraine, the oil companies have made the decision to prioritize fattening their own profits over moderating the cost of gasoline for the average person.
In the United Kingdom this practice has led to the implementation of a 25 percent windfall profits tax. At first, the country’s Conservative government resisted imposing the tax, but when both BP and Shell reported “massive quarterly profits” in May, UK Chancellor Rishi Sunak told lawmakers in the House of Commons, “The oil and gas sector is making extraordinary profits, not as the result of recent changes to risk-taking or innovation or efficiency, but as result of surging global commodity prices driven in part by Russia’s war.” The UK’s excess profits tax will stay in force for 12 months.
It comes as no surprise that American corporations today ignore any damage their decisions might have on the general public interest. The obsession with “shareholder value” and the mythical notion that corporate elites, hedge fund managers and private equity manipulators are “job creators,” have spawned an economy in which the “haves” feel entitled to grind down the “have nots.”
Jack Welch, the infamous former chief of General Electric between 1981 and 2001, received $122.5 million in compensation his last year at the helm of GE. In a review of a recent Welch biography, it was noted that his predecessor in 1980 earned only “12 or 13 times what new management recruits to the company took home at the time.” Welch was a trend-setter.
Fortune magazine reported in April 2022, median CEO compensation was 205 times the typical worker’s annual salary in 2021. Twenty-five companies gave their CEOs over 1,000 times what their typical employees made last year. Also in the Fortune report, across the board CEO pay rose 19 percent in 2021, while the average hourly wage in the US rose only 4.7 percent, not enough to keep up with inflation.
To add insult to injury, roughly 2/3s of CEO compensation comes in the form of stock awards according to the Wall Street Journal. This means their remuneration is taxed at a discount not enjoyed by the average wage-earner. In some cases, CEOs with multimillion dollar compensation do not pay the maximum payroll tax to support Social Security.
Some US politicians argue that enhanced unemployment benefits for workers displaced by the pandemic, automatic monthly payment of child tax credits, and the forgiveness of student loans are inflationary measures. But these have all been discontinued or deferred and we still have galloping inflation. Perhaps we have overlooked the real source of the problem?