President Barack Obama proposed a $10 per barrel oil tax as part of his annual budget proposal presented to Congress on February 9.
The White House says the tax will serve the dual purposes of reducing demand for oil, thus fighting climate change, and increasing funding for transportation.
Obama’s proposal comes at a time when low oil prices are causing oil and gas companies to scale back operations. In 2015, oil and gas companies laid off more than 258,000 workers globally, and the number of active drilling rigs in the United States fell by 61 percent.
Highway Funding Gaps
Federal spending on road construction and maintenance comes from the Highway Trust Fund (HTF), funded by an 18.4-cents-per-gallon tax on gasoline and a 24.3-cents-per-gallon tax on diesel fuel. HTF has run annual shortfalls topping $10 billion in recent years, and estimates show there is a $740 billion backlog of repairs to the nation’s roads and bridges.
The reasons behind the shortfall include people driving more fuel efficient cars and driving fewer miles due to poor economic conditions, resulting in a decline in oil consumption of two million barrels per day since 2005.
Another factor contributing to the highway maintenance backlog is as much as 25 percent of highway funding is diverted annually to non-highway projects, including mass transit and visitor centers.
Obama’s proposed tax would be phased in over five years. At current rates of consumption, the tax would generate approximately $65 billion annually when fully enacted. Obama proposes diverting more than $30 billion annually of the revenue to new public transit options and to encourage local and state governments to implement regional land use planning to reduce carbon dioxide emissions.
Myron Ebell, director of the Center for Energy and Environment at the Competitive Enterprise Institute, believes Obama’s oil tax proposal is political theater.
“Since Obama knows the current Congress will not consider this oil tax, I can only conclude it’s political symbolism aimed at [pleasing] the international climate cabal,” said Ebell.
Tax ‘Dead on Arrival’
Congressional Republicans and energy industry insiders reacted negatively to Obama’s oil tax proposal.
Rep. Paul Ryan (R-WI), speaker of the U.S. House of Representatives, issued a statement in which he said, “Once again, the president expects hardworking consumers to pay for his out of touch climate agenda. A $10 tax for every barrel of oil produced would raise energy prices—hurting poor Americans the most. The good news is this plan is … dead on arrival in Congress.”
C. Jeffrey Eshelman, senior vice president for operations and public affairs at the Independent Petroleum Association of America, says Obama’s oil tax will hurt consumers.
“President Obama said on many occasions, ‘We can’t drill our way to lower gas prices,’ but we did, [and] in the process creating thousands of jobs and providing billions of dollars to local, state, and federal treasuries,” Eshelman said. “Now, with the industry struggling, the president is choosing climate activism over common sense, ignoring the benefits of American energy.
“Obama is out of touch with average Americans who are benefiting from low fuel costs,” said Eshelman. “It’s obvious the president hasn’t filled a gas tank or paid a utility bill in the past seven years.”
H. Sterling Burnett, Ph.D. ([email protected]) is a research fellow with The Heartland Institute.