Gas Taxes

Obama's New Oil Tax Would Drive Up Gas Prices

The president is virtue-signalling during his final year in office.



If you have ever found yourself at the gas pump thinking, "I really wish it cost more to fill up," then President Obama has just the idea for you. In his final budget request, he will include a call for an additional $10 in taxes per barrel of oil. This terrible idea would roll back the tremendous energy gains made in recent years and harm the economy.

The biggest and most obvious impact of the Obama gas tax would be its impact on the pocketbooks of American drivers. That's right: one of the most underrated findings in economics is the fact that the person cutting the tax check isn't always the one shouldering its burden. In this case, you can tax "oil companies" as much as you want, but the burden will be passed on to consumers. And indeed, estimates show the $10 per barrel fee could translate to roughly 22 cents per gallon of gasoline. That would more than double the current federal gasoline tax of 18.4 cents per gallon. The president, in other words, wants Uncle Sam to collect $5 or more every time you fill up.

The president's plan for this new windfall is to fund a "21st century clean transportation system." Central planners love to dream up such massive projects, but they lack the discipline and necessary market incentives to determine if they're actually feasible, much less to implement them successfully. California's multibillion-dollar high-speed rail boondoggle is just one of many examples proving the point.

The White House is spinning that the added costs imposed by the new crude oil fee will be borne primarily by producers, but that belief defies economic reality. It will be passed on to consumers and felt not only at the pump, but also in their homes and through higher costs for any other good or service that requires significant energy use.

It wasn't so long ago that the president at least rhetorically acknowledged the negative impact of higher energy costs, particularly on the poor—for whom transportation and residential energy costs account for a larger share of their household budget. During a speech in 2011 on energy security, he said of rising oil prices: "If you're somebody who works in a relatively low-wage job and you've got to commute to work, it takes up a big chunk of your income. You may not be able to buy as many groceries. You may have to cut back on medicines in order to fill up the gas tank. So this is something that everybody is affected by."

Then, as energy specialist at the Heritage Foundation Nick Loris reminded me, "In his last State of the Union not too long ago, Obama said that gas prices under two dollars a gallon 'ain't bad.'" As Loris noted, "He was right. It may be bad for his goals to fuel cars on algae or push millions of subsidized electric vehicles to the market. But it's putting money back into the wallets of American households."

I assume the president understands the consequences of what he is proposing, so apparently he now thinks that more money in consumers' pockets is a bad thing. Or maybe it's because he can't claim credit for it. Indeed, the price of oil has dropped considerably, thanks to an energy revolution that he opposed every step of the way, even though it has significantly benefited the economy. Unable to prevent positive developments like fracking despite the determined effort of his regulators, the president instead is now seeking to offset the benefits of greater energy production by attaching to it the ideological baggage of austerity environmentalism.

Presidents at the end of their tenure in office are generally prone to legacy building. President Obama has taken that impulse one step further and wandered into the realm of virtue signaling. He must surely know that Congress is not going to impose such a massive new tax on Americans—especially in an election year—yet he's seemingly satisfied by simply broaching the topic in hopes that it becomes more politically palatable in the future.