Obama's $10 Oil-Tax Pipe Dream

The president is proposing a big per-barrel fee. It won’t be passed by this Congress, but what about the next?

David Mdzinarishvili / Reuters

If Congress won’t raise taxes on gasoline, will it slap a fee on oil?

That’s what President Obama will ask of lawmakers when he releases his final budget proposal next week, calling for a $10 tax on every barrel of oil to pay for a long-term infusion of spending on infrastructure. Coming from a lame-duck Democratic president, the proposal is, plainly, a non-starter in the Republican-led Congress. But the idea is sure to jumpstart the debate over energy and infrastructure in this year’s presidential campaign, and it signals a renewed effort to find a fresh way to pay for upgrades to the nation’s transportation system that both parties agree are sorely needed.

“Our transportation system used to be a source of competitive advantage for our global economy, but today we’re at risk of it becoming an Achilles heel,” Jeffrey Zients, director of the White House National Economic Council, told reporters on a conference call.

While both Democratic and Republican-led states have been raising the gas tax in recent years to pay for upgrades, Congress hasn’t touched the 18.4 cent-per-gallon gas tax in more than two decades, even as prices have dropped steadily to below $2 a gallon at the pump. On the surface, taxing a barrel of oil rather than gasoline should be an easier political sell. The levy would still be passed onto consumers in price increases, but it’s a less direct hit and would be broader than targeting only the heaviest users of streets and highways. Oil companies have always been ripe targets for Democrats, who have proposed windfall-profits taxes in the past.

Yet Obama’s $10-a-barrel tax comes at a more precarious moment for the oil industry, which has been rocked by plummeting prices in recent months. Companies that complained whenever politicians would propose a new tax can now do so a bit more credibly. “The industry is in largest crisis in over 25 years,” the Independent Petroleum Association of America tweeted Thursday afternoon. “This is an energy consumer tax disguised as an oil company fee.”

Zients acknowledged that oil companies “will likely pass on some of these costs,” but he said the burden of a per-barrel tax would be shared much more broadly than increasing the gas tax. While imported oil would be subject to the fee, U.S. companies exporting oil would not. “Our domestic producers will continue to operate on a level playing field,” he said.

Congress passed its first long-term infrastructure bill in more than a decade late last year. Obama signed it into law but said at the time that its $305 billion in spending was only a down payment on what was needed. Administration officials pitched his new plan as one that would simultaneously boost overall surface transportation spending by 50 percent as well as continue to fight climate change by shifting away from oil and toward more efficient transit options like high-speed rail.

The big short-term question is not how Congress will react, nor even the Republicans running to succeed Obama. They’ll almost certainly reject the president’s plan. But what about Hillary Clinton and Bernie Sanders, both of whom have promised expansive infrastructure investments? Will they embrace a tax on oil companies, or are they wary of alienating the consumers who might ultimately have to pay it? “For too long, there’s been strong bipartisan agreement that we need much more infrastructure, but that hasn’t been accompanied by the political will to fund it,” Zients said. “People call for more transportation spending, but they never talk about how they’ll pay for it.”

Obama is starting that conversation, but he won’t be the one to finish it.