How Obama's Oil Tax Would Cost Americans

By Lifestyle and BudgetFOXBusiness

As part of a budget proposal next week, President Barack Obama will push for a new $10-per-barrel tax on oil that would not only prove costly for struggling drillers; Drivers would likely bear the brunt of the tax.

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The White House wants to implement the tax on domestic and imported oil to fund “clean transportation” projects such as mass transit and electric cars. The proposed tax would be phased in over five years, though the Republican-controlled Congress will undoubtedly reject the idea. Louisiana Rep. Steve Scalise, a member of the House Energy and Commerce Committee, called the tax “dead on arrival.”

In a conference call with reporters, White House economic adviser Jeff Zients said the administration recognizes that “oil companies will likely pass on some of these costs.” However, he declined to say whether the tax would lift retail prices for gasoline.

“It’s overly obvious to me that this is going to be a tax that’s going to be passed on to consumers, almost in its entirety. Especially today, when oil companies are losing billions of dollars,” Patrick DeHaan, senior petroleum analyst at, told “Americans love their cars. It’s almost like a sin tax.”

The American Petroleum Institute believes the Obama Administration’s tax proposal would add another 25 cents a gallon to pump prices. That means it would effectively double the federal gas tax, which is 18.4 cents a gallon. The current national average for a gallon of gas sits at $1.76.

“The White House thinks Americans are not paying enough for gasoline, so they have proposed a new tax that could raise the cost of gasoline by 25 cents a gallon, harm consumers that are enjoying low energy prices, destroy American jobs and reverse America’s emergence as a global energy leader,” API President and CEO Jack Gerard said in a statement.

American oil production is near record highs, but experts say the tax could benefit foreign producers like Saudi Arabia who would look to fill the void left by U.S. producers that cut back. Domestic producers could also look to ship more oil out of the U.S. A federal ban on exports was lifted before the end of 2015.

Oil companies have slowed production and reduced spending in response to a prolonged rout in the oil market. According to Graves & Co., the energy industry has shed more than 270,000 jobs globally. U.S. crude, which was trading near $31.50 a barrel on Friday, is down roughly 70% since its 2014 high of $108 a barrel.

A $10 tax on every barrel of oil would make drilling less feasible for many producers, especially those in shale plays where the more expensive process of hydraulic fracturing is prevalent. Companies have already slashed costs to account for weaker oil prices.

DeHaan noted that taxing oil in the U.S. would have far-reaching consequences beyond gasoline. It would affect prices for heating oil, jet fuel and even plastic bags.

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