Obama proposes $10-per-barrel oil tax

Revenue from the tax on oil producers would support clean transportation projects and infrastructure, but the tax's critics say American consumers could bear some of the tax burden. 

Carolyn Kaster/AP
President Obama speaks in the East Room of the White House, in Washington, Thursday.

President Obama’s fiscal 2017 budget will include a proposed $10-per-barrel tax on oil. This proposal marks another step in the president’s climate change agenda, which he has been pursuing with alacrity during his final year in office.

“Even if the planet wasn’t at stake, even if 2014 wasn’t the warmest year on record – until 2015 turned out to be even hotter,” said Mr. Obama in his State of the Union speech in January, “why would we want to pass up the chance for American businesses to produce and sell the energy of the future?”

The proposed oil tax is one of the ways Obama hopes to spur environmental consciousness and pay for clean transportation, such as railways and highway projects. The tax will help fund a proposed $300 billion, five-year investment in American infrastructure, with special emphasis on light rail, subway systems, buses, and other commuting options.

The plan’s proponents were keen to make clear that the tax will not harm exported American oil. Only imported oil, not American exports, would be subject to the tax.

Technically, oil companies would be responsible for paying the tax. But economists like Jeff Zients, director of the White House National Economic Council, say that consumers could feel the sting as oil companies pass on some of the weight of the tax. Obama’s plan therefore also provides incentives for consumers to use less fuel, driving down oil consumption and emissions.

“By placing a fee on oil, the President’s plan creates a clear incentive for private sector innovation to reduce our reliance on oil,” said the White House in a statement, “and at the same time invests in clean energy technologies that will power our future.”

According to the White House statement, the oil tax would increase government investment in clean transportation infrastructure by approximately fifty percent.

American transportation infrastructure, once respected worldwide, has lately received poor ratings by groups like the American Society of Civil Engineers. In 2013, the ASCE gave American infrastructure a D+ overall on its annual report card. The top ranking category, solid waste disposal, received a B-.

The oil tax would not have an immediate, universal impact, but would instead be phased in over five years. When fully implemented, it would amount to about a 24-cent-per-gallon tax, The Washington Post reports. Revenues could reach up to $65 billion a year.

Republicans currently control Congress and will likely make it difficult for the tax plan to pass. House Majority Whip Steve Scalise, a Louisiana Republican, called the tax proposal “dead on arrival.”

Although the tax is intended as a fee on oil producers, opponents of the tax argue that consumers would also bear a heavy burden, with little gain.

House Speaker Paul Ryan (R) of Wisconsin criticized the proposal in a statement, saying “Once again, the president expects hardworking consumers to pay for his out of touch climate agenda.”

Many Republicans echoed the speaker's remarks. Although the White House believes that the tax could create thousands of jobs, others expressed concern that with the American economy still recovering from a financial crisis, the new tax could do more harm than good.

Oil and gas lobbying groups also had strong reactions to the proposal. Jack Gerard, American Petroleum Institute president and chief executive officer said, "The White House thinks Americans are not paying enough for gasoline.”

Refining companies like Texas-based Tesoro also objected to the tax, reiterating that the tax will not only impact oil producers, but American consumers as well.

Yet, some energy consultants argue that because gas taxes have not been raised in more than two decades, this tax would merely be a “return to standard practice” set by the Eisenhower administration in the 1950s.

Obama has been pushing his environmental agenda recently, after establishing it as a priority during his 2016 State of the Union speech.

In January, the US Court of Appeals for the District of Columbia Circuit rejected a bid by states and energy producers to stay the implementation of the Environmental Protection Agency’s Clean Power Plan, a plan Obama backed. Later last month, the US Supreme Court ruled that the Federal Energy Regulatory Commission could continue a power saving energy regulation strategy called demand response.

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