Obama’s $10 a Barrel Oil Tax is Wise, Dead on Arrival

President Obama has proposed a $10 per barrel tax on oil, the funds from which would pay for investment in mass transit, self-driving and electric cars, high-speed rail and other relatively clean transportation. At a time when oil prices have dropped 70%, the tax is well-timed, and the purpose for which it is being raised is laudable. The only flaw with the idea is that Congress won’t pass it. It’s dead on arrival.

Although this is being label a “fee” to be paid by the oil companies, they will probably be able to pass on the entire tax to consumers. Were the tax to go into effect, it would add about 25 cents to the price of a gallon of gasoline, and proportionally to the price of heating oil and aviation fuel. Over the next decade, Mr. Obama is proposing $300 billion in transportation spending, and this fee would cover the lion’s share of that sum. Given that the America’s civil engineers estimate that America needs to spend $1-2 trillion on its infrastructure (much of it transportation related), that might just be scratching the surface. Clearly, it is needed.

Politico quoted two senior administration officials as saying, “transportation accounts for 30 percent of U.S. emissions, and that Obama’s plan would boost spending on green transportation infrastructure by about 50 percent. They also argued that the U.S. transportation system, long the envy of the world, has become an economic drag that imposes $160 billion in hidden taxes on businesses and commuters while stranding Americans in traffic for 7 billion hours every year.”

So, why is this good idea dead on arrival? First, it is going nowhere because President Obama proposed it. The Republican Party controls both houses of Congress, and they have made it clear over the last 7 years that they will do nothing that can be perceived as positive if he has proposed it. They would rather rule over a nation that is falling apart than share the glory of fixing things with him.

Second, Politico also said, “Obama’s call for a barrel fee reminiscent of the gasoline taxes and carbon taxes that are anathema to so many Republicans would be especially dead on arrival, even though it would be phased in over five years, and would include relief for low-income families and Northeastern households that transition away from heating oil. Most politicians love infrastructure spending, but most politicians, especially Republican politicians, do not love raising taxes to pay for that spending. The FAST Act, for example, was mostly paid for with budgetary gimmicks, to the extent it was paid for at all. The Obama plan also floats the notion of using revenues from corporate tax reform to help pay the tab, but the headline proposal is the $10-a-barrel fee.” The GOP won’t raise taxes in an election year, if ever. This comes despite the fact that Ronald Reagan slapped a nickel-a-gallon tax on gasoline in 1982 to fund transportation projects.

The final reason this plan is going nowhere is that Hillary Clinton has issues with the issue. She has said that she opposes a tax hike for all families earning less than $250,000 a year (her definition of the middle class is more than loose). This alleged fee certainly looks like a sales tax that hits everyone. The Republican nominee will be able to argue, with some accuracy, that she has gone back on her word about taxes if she backs this plan. She has enough trouble with the truth in the minds of many as it is. Democratic legislators who support her have no reason to move ahead with this.

So why bother? One administration official stated, “This is a new vision. We’re realistic about the near-term prospects in Congress, but we think this can change the debate.” Changing the debate is a long process that requires a politician to stick his or her neck out. Fortunately, Mr. Obama is in his last year in office and has sufficient achievements behind him that failing to change the debate here is not much of a risk to his political future.