President Joe Biden is calling on oil and gas companies to start steering record profits away from shareholder pockets to give Americans some relief at the pump.
A new economic analysis suggests the approach could be key to lowering prices across the board.
Josh Bivens, research director for the Economic Policy Institute, recently deconstructed each major component impacting prices over the past year, including wages, corporate profits and supply-chain issues.
“It’s overwhelmingly profits, it’s not wages,” Bivens reported. “Normally profits are about 11% to 12% of the final price of any good. But they contributed more than 50% to price growth over the 2020-21 period.”
Normally, wages contribute about 60% to the price of goods, but last year labor came in at just under 8%. Supply-chain disruptions accounted for 38% of rising costs. Calls for a windfall profits tax have been largely absent in debates on how to tackle inflation, with some economists noting the drive to increase corporate profits is just business as usual.
Analysis by the group Accountable.US found top corporations producing food, energy, commodities, health care and housing delivered more than $140 billion to shareholders after raising prices.
Bivens argued a temporary tax on profits could help counterbalance the pricing power companies currently have over consumers.
“If the policy recommendation is to just ask them politely not to raise prices, that would be silly,” Bivens contended. “But it really does put some policy options on the table, like an excess profits tax. You reduce the incentive to raise prices, you’re not harming the economy’s ability to move resources around in the long run.”
Recent polling by Global Strategy Group suggests Americans are not buying the argument inflation is being driven by aggregate demand racing ahead of supply.
Seven in 10 Republicans, eight in 10 Independents, and nine in 10 Democrats blame corporate greed for rapidly rising prices.