Obama $10-Per-Barrel Oil Tax Lands With Thud in Congress

  • President says he will propose tax in his 2017 budget plan
  • Proceeds would fund transportation needs, climate research

Is Obama's $10-per-Barrel Oil Tax Dead on Arrival?

President Barack Obama will propose a $10 per barrel tax on oil in his fiscal 2017 budget plan, an idea that received a chilly reception in the Republican-controlled Congress that oversees spending.

With the proceeds targeted to transportation and climate initiatives, the proposal announced Thursday deepens Obama’s environmental credentials and signifies his ambitions to aggressively push action on climate change during his final year in office.

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

It is unclear who, exactly would pay the tax if it were to pass, and how it would be structured. White House officials repeatedly stressed that the fee would fall on oil companies, but said it wouldn’t be charged at the wellhead and they look forward to working with Congress on the details.

The fee, which drew swift objections from oil industry groups and Republicans, is part of a broader administration plan to shift the nation away from transportation systems reliant on internal combustion engines and fossil fuels. The proposal envisions investing $20 billion to reduce traffic and improve commuting, $10 billion for state and local transportation and climate programs and $2 billion for research on clean vehicles and aircraft.

Phased In

The new oil tax, which would be phased in over five years, is all but certain to be rebuffed by Republicans who control both chambers of Congress.

“President Obama’s proposed $10 per barrel tax on oil is dead on arrival in the House," said House Majority Whip Steve Scalise, a Louisiana Republican.

Environmentalists applauded the move. "President Obama’s vision underscores the inevitable transition away from oil, and investments like this speed us along the way to a 100% clean energy future," Sierra Club Executive Director Michael Brune said in an e-mail.

Inadequate infrastructure raises costs for businesses and consumers, including motorists stuck in traffic -- a "hidden tax" and a harm to the environment, said Transportation Secretary Anthony Foxx.

Foxx said the plan increases investment in infrastructure in a way that combats climate change.

Transportation System

Oklahoma Senator Jim Inhofe, the Republican chairman of the Environment and Public Works Committee, said he agreed on the need to improve the nation’s transportation system but would oppose the oil tax.

"I’m unsure why the president bothers to continue to send a budget to Congress," Inhofe said in a statement. "His proposals are not serious, and this is another one which is dead on arrival. America is ready for a new president.”

Jeff Zients, director of the National Economic Council, told reporters that exported oil products wouldn’t be subject to the fee, even though imported ones would "across the board."

"We recognize oil companies will likely pass on some of these costs," Zients said.

Obama administration officials cast the additional cost as more than offset by the benefits of building better highways and transit systems.

"Make no mistake, this is an energy consumer tax disguised as an oil company fee," Neal Kirby, a spokesman for the Independent Petroleum Association of America, said by e-mail. "At a time when oil companies are going through the largest financial crisis in over 25 years, it makes little sense to raise costs on the industry."

Political Opening

The dip in gasoline prices may have created a political opening for Obama’s proposal, but it also could create tricky politics for one of the Democrats running to succeed him in the White House, Hillary Clinton.

Obama has used his annual budget request to Congress to go after tax deductions and incentives long enjoyed by oil and gas companies -- proposals that have never advanced on Capitol Hill.

"The president perennially proposes repealing the oil industry tax credits which Congress annually ignores," Benjamin Salisbury, a senior policy analyst at FBR Capital Markets, said by e-mail. "It seems overwhelmingly likely that this fee meets the same fate."

The plan comes with oil prices down 13 percent this year, thanks to increasing supply and a weakening U.S. dollar. Crude stockpiles climbed 7.79 million barrels to 502.7 million last week, the highest since the 1930s, according to weekly and monthly data from the Energy Information Administration.

‘Climate Activists’

House Speaker Paul Ryan, a Wisconsin Republican, said Obama “expects hard-working consumers to pay for his out-of-touch climate agenda."

"The president should be proposing policies to grow our economy instead of sacrificing it to appease progressive climate activists," he said in an e-mail.

Before the plan was announced, West Texas Intermediate for March delivery slipped 61 cents, or 1.9 percent, to $31.67 a barrel at 1:54 p.m. on the New York Mercantile Exchange.

Kevin Book, managing director of ClearView Energy Partners, a Washington-based research company, said there are "near-zero odds that the Republican-led Congress will grant the president’s request."

"A Congress without the political will to enact a $0.12 per gallon tax on gasoline sales that would have phased in over two years seems very unlikely to impose a new fee on oil companies that would amount to the equivalent of $0.238 per gallon phased in over five years," he said in a research note for clients.

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