Obama's Oil Tax Is Running on Empty
President Barack Obama’s proposal to levy a $10-a-barrel tax on oil reminds me of an eternal truth that applies to almost all working humans: Once you know you are on short time, about to be transferred or discharged, a certain puckish insouciance seeps into the performance of your daily duties.
Presidential budgets are always more wish list than “To Do,” of course. Assumptions are made, hopeful suggestions offered, and then Congress chuckles and says “Good one, chief” before returning to whatever they were doing before. This is especially true when the opposition controls both legislative houses. And it is most very especially true during the last year of a presidency, when a lonely nation’s eyes turn toward the folks vying to replace you.
Even by these standards, however, a $10-a-barrel oil tax is a bold choice. There is something to be said for taxing oil. It is a very regressive tax, of course, and its revenues will tend to falter whenever there is a recession. It is also going to fall most heavily on rural residents and exurban commuters, two groups not noted for their excess cash. On the other hand, it is a difficult tax to evade, which makes it quite efficient to collect. To the extent that it suppresses consumption, it transfers money out of the pockets of a number of unsavory oil-producing nations and into the U.S. Treasury. Oh, and it might make some contribution to mitigating that global warming problem a bunch of pointy-headed scientists seem to be worried about.
But voters hate oil taxes. They make it more expensive to heat your home and drive your car, things that most voters have to do. And while those costs can be mitigated by, say, buying a smaller home or car, or moving closer to work, most people bought a bigger home and a bigger car because they wanted one. They will not like having to give it up. Moreover, even if you’re willing to downsize, you can't do that overnight. Especially since making energy more expensive will cause the value of your current oil-guzzler to fall, making it harder to sell and get into something daintier without taking a big loss. This is why both cap-and-trade and carbon taxes have failed to go anywhere in U.S. national politics: If you pass one, all those angry people will descend on your office, screaming for your head.
As a policy matter, if you are going to enact such a tax, the time to do so is probably right now, when oil prices have plummeted. People have already worked to make their cars and homes more energy efficient, in order to cope with almost a decade of soaring prices. The longer oil prices stay low, the more people will tend to switch back to gas-guzzling trucks, longer road trips, and less energy-efficient homes. By enacting the tax now, you give people some incentive to stay more efficient at minimal economic cost.
But as a political matter, this is still not a good time. After almost eight years of minimal economic growth, the fall in oil prices has brought some welcome relief to strained household budgets. Many U.S. oil companies are losing money, particularly the shale oil folks, making the workers and local economies that depend upon them anxious. Jacking up the price of gas and home heating oil is going to upset all those people, who will in turn do their best to upset any legislators who propose such a thing. Congressional Republicans are certainly not going to stick out their necks for an opposition-party president with whom relations have never been warmer than “testy.”
The administration has made some gestures toward mitigating this opposition, notably by claiming that the tax will be paid by oil companies. But this is obvious nonsense. Oil companies currently have few profits from which to pay the tax. Whoever is responsible for filing the paperwork, the cost will be paid by consumers in higher fuel prices, and the administration surely knows this.
That hardly matters, however, because this is a daydream proposal in a never-never budget. Its point is to make a moral argument and motivate the environmentalist portion of the Democratic base, which the party would very much like to see at the polls this November. Perhaps it will force the Democratic nominees to pay fealty to the proposal, as they wend their way through the grueling round of campaign stops, debates, and press appearances. What this tax will not do is pass.
But that’s the great thing about the last year of your presidency: Nothing’s going to pass anyway, so you can stop worrying about the grinding realities of retail politics. Now is the time to daydream, to swing for the fences … and perhaps, to irritate a few more of your coworkers on your way out the door.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
To contact the author of this story:
Megan McArdle at firstname.lastname@example.org
To contact the editor responsible for this story:
James Gibney at email@example.com