Obama’s Big New Idea This Year: A $10 Tax on Every Barrel of Oil

Pumping up a potential source of tax revenue.

Spencer Platt/Getty Images

As if the election cycle hadn’t already supplied us with enough ambitious and politically doomed policy ideas, President Obama on Thursday called for a new $10 fee on every barrel of oil sold in the United States, which would be used to fund billions of dollars in new green transportation projects. The plan, to be phased in over five years, will be included the White House’s annual budget, which it is preparing to release next week.

Think of this as an increase in the gas tax, but with slightly broader reach, and perhaps slightly better political optics. Any fee imposed on oil companies would likely be passed on to consumers in the form of higher prices, so motorists, airline passengers, trucking companies, and the like would eventually end up paying much of the bill (transportation is responsible for about 70 percent of U.S. oil use). The cost of other petroleum products, like plastics, would also rise a bit. As the White House clarified on a call with reporters, the fee would apply to imported oil, but not to exports from the U.S., so American-drilled crude wouldn’t be at a disadvantage on the global markets.

A hike along these lines is probably long overdue. The federal gas tax has been stuck at 18.4 cents a gallon since 1993. Congress, fearful of angry suburban drivers, has refused to lift it, which has made adequately funding crucial infrastructure spending trickier over the years. One of the main benefits of taxing oil companies rather than commuters is that the fee is better hidden from the public—the cost might get passed downstream, but people have to think about it a little before getting mad. Plus, rhetorically, it’s just easier for a politician to talk about making Exxon Mobil pay up than it is to ask car owners to pay more.

Ultimately, Politico notes that Obama’s proposal could add about 25 cents onto the price of gasoline, which should be somewhere around $145 per driver, per year.

In theory, there are other policy advantages to an oil tax. Some advocates have suggested using it to replace all of the various fuel excise taxes the government currently collects. That would both simplify the IRS’s job and perhaps help the public forget about the tax altogether. It would also act as a de facto carbon tax that would, again, reach beyond gasoline, and would encourage some amount of conservation. And though Obama doesn’t seem to be going this route, the government could also tax a percentage of each barrel’s cost rather than collecting a set fee, so that if the price of oil went up, Washington would get more revenue (of course, if the price went down, it would  collect less).

But given that most policy proposals are DOA at the moment, the White House’s idea mostly seems like an experiment in messaging. We’ll see if taxing oil is more politically palatable than taxing gasoline.