Economic trend watchers at the United Nations are seeing a growing number of windfall taxes aimed at abnormal levels of profitability in a context of high inflation.
“Windfall taxes figured prominently among the measures introduced in developed countries,” economists from the United Nations Conference on Trade and Development wrote in their 2023 World Investment Report released on Wednesday. .
“Several developed countries have introduced taxes aimed at ensuring a fair distribution of profits in industries that have seen large gains due to the pandemic and to fund stimulus programs or subsidies for energy consumers,” they said. declared.
Countries like the UK, Italy, Portugal, Romania, and Croatia have adopted various types of windfall taxes. Many are specifically aimed at the energy sector, which has seen a spike in prices following the war between Russia and Ukraine, contributing significantly to inflation.
The UK Energy Profits Tax, enacted last year, taxed the profits of oil and gas companies at a rate of 25% and was later increased to 35%. There was also a 45% tax on abnormal profits from companies that generate electricity.
Portugal’s temporary solidarity tax for energy and food distribution companies levied a 33% tax on profits in 2022 and 2023 – if they exceeded the average taxable profits of previous years by more than 120%.
US lawmakers have made similar proposals, but have so far failed to make it law.
Such a proposal from the Democrats would tax each barrel of oil produced or imported by certain major oil companies at 50% of the difference between the current price per barrel and the average price per barrel between 2015 and 2019. The tax would apply to companies that produce or import at least 300,000 barrels of oil per day or did so in 2019.
“Instead of an economy creating windfall profits, we need one that creates wind power. This bill will protect consumers from profits,” Sen. Ed Markey (D-Mass.) said when the legislation was released.
Gasoline prices have fallen significantly from nearly $5 a gallon last year to around $3.50 a gallon as energy prices ease. West Texas Intermediate crude oil fell to around $70 a barrel, after costing more than $100 last July.
The UN report notes the “still high profit levels” of the world’s 3,849 largest private companies. Global profits generally stayed in the $2 trillion range in the decade before the pandemic, then exploded above $3.5 trillion in 2021 during the economic recovery and climbed further in 2022.
The rate of profit in the US economy has been rising for decades, rising from 1% to 8% over the past 40 years, according to a study published in the Quarterly Journal of Economics. The profit share has also increased in the wake of the pandemic, at the same time as the labor share has declined.
The extent to which profits have been responsible for the current wave of inflation has been the subject of intense debate among American economists – largely ideological rather than empirical – but UN economists have been observing this relationship for a long time. Last year.
“Where data is available, such as in the European Union, the United Kingdom and the United States, there is clear evidence of a significant contribution of higher profit margins to inflation as a result of the pandemic” , the UN economists wrote last year.
Last year, UN economists criticized global policymakers for “political myopia” over the role of profits in global inflation.
“As policymakers focused on the threat of a price-wage spiral and the expected consequences that accompany it (a concern, which would prove mostly unfounded), the danger of speculative pressures on commodity prices raw materials as well as retail and farmgate prices-implementation practices have been ignored or completely missed,” they said.
“Because of this policy myopia, prices in some key sectors that directly impact the cost of living, such as natural gas, food and the rental housing sector, have continued to rise alongside a strong increased profit margins,” they wrote. .
Wednesday’s report also notes that foreign direct investment fell 12% last year after nosediving in 2020 and recovering in 2021.
Copyright 2023 Nexstar Media Inc. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.