Why Obama's Oil Tax Hasn't Got A Chance

Source: WTSP

Will President Obama's recently proposed tax on oil do anything to help drivers who spend an estimated 7 billion hours a year stuck in traffic?

Definitely not, according to experts now analyzing the $10.25 a barrel tax in theproposed fiscal 2017 budget that the president unveiled today.

"It's a tax for pet projects -- that's about it," said Patrick DeHaan, senior petroleum analyst at GasBuddy.com, a website that helps motorists to find low gas prices in the U.S.

At best, Obama's proposal for a tax on big oil to fund projects such as self-driving cars "serves less as a practical proposal than as aspirational vision," said Dr. Alan Krupnick, co-director of the RFF Center for Energy and Climate Economics.

The Republican-controlled Congress has already rejected the $4.15 trillion proposed budget sight unseen, and committees in both the Senate and House of Representatives have snubbed an opportunity to meet with Obama's budget director.

"This isn't a budget so much as a progressive manual for growing the federal government at the expense of hardworking Americans," said House Speaker Paul Ryan.

Ryan singled out the president's proposed oil tax specifically, saying it "would raise the average cost of gasoline by 24 cents per gallon while hurting jobs and a major sector of our economy."

The oil tax proposal is a disappointment even to people in academics and politics who recognize the problems with America's ailing roads and infrastructure and the need to find money for improvement.

The American Society of Civil Engineers "report card" gives the U.S. a "D+" rating and says the country will need $3.6 trillion by 2020 to maintain it in good repair. Among the categories that got this "poor" rating were bridges, roads and drinking water.

This translates into an extra 7 billion hours that harassed drivers must spend on the road, according to data from the American Automobile Association (AAA), along with 3 billion gallons of gas wasted by idling engines and a total of $160 billion in total losses each year.

"(We) are paying a steep price due to potholes and bad road conditions," said Michael Green, a spokesperson for AAA.

Some experts say the estimated $32 billion yearly that the tax could bring in wouldn't even come close to fixing the problem. But to make matters worse, much of the money would never be used for the roads and would instead be spent on a grocery list of projects that "accelerate the integration of autonomous vehicles, low-carbon technologies and intelligent transportation systems into our infrastructure," according to the proposed budget.

The proposal would also use 15 percent of the oil fee revenues to provide assistance to low- and moderate-income families facing higher costs from the transition to cleaner energy. That's a social rather than economic goal unlikely to sit well with Republicans complaining about the budget deficit.

While The Atlantic magazine called the plan "Obama's $10 Oil-Tax Pipe Dream," others said it was ingeniously designed to collect revenue while deflecting criticism away from the administration.

"By applying it to the oil companies, you let them be the monsters," said GasBuddy's DeHaan.

Since the $10.25 a barrel tax would represent about a third of the current price of oil, oil companies would pass the increase along to consumers "as quickly as the tax is approved," according to Luana Siegfried, an energy analyst associate with Raymond James.

The oil industry -- rather than the government -- would then face the brunt of consumer anger.

With oil prices down sharply, oil companies would be hard-pressed not to pass the tax along. The U.S. oil industry faces a "gloomy outlook," according to Paul O'Donnell of IHS, which provides research on the energy markets. It could see "forced asset sales at bargain prices, sizable staff layoffs and, in the worst cases, bankruptcies."

Many experts agree that while the nation needs more taxes to help patch its roads, particularly since the federal gas tax hasn't budged in 22 years, a tax on crude isn't the way to go.

Among their suggestions is a "variable" tax that would rise and fall with the price of gasoline. It could be based on inflation, suggests Avery Ash, director of federal relations for the AAA, because more money is needed as construction costs rise. Or it could work inversely to the price of gasoline, which would minimize the pain for consumers, since a higher price for gas would lower the tax, and drivers would pay a higher tax as the base cost of gasoline went down.

But almost no one thinks President Obama's plan will work.