‘Fracking Tax’: Obama Proposes $10 Tax on Every Barrel of U.S. Oil

That's a nearly thirty percent tax, which will be passed on to American consumers.

By Michael Bastasch Published on February 5, 2016

President Barack Obama plans to tax every barrel of oil produced in the U.S. to fund new spending on “green” infrastructure programs.

Obama is no doubt looking to impose a new $10 per barrel oil tax while crude prices are low and consumers are less likely to feel the pressure from more expensive oil. But critics argue such a tax will simply pass costs along to consumers and make it more expensive to pump gas.

“Make no mistake, this is an energy consumer tax disguised as an oil company fee,” Neal Kirby, spokesman for the Independent Petroleum Association of America, said in an emailed statement. “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.”

But with oil prices so low, around $32 a barrel, a $10 fee on production amounts to a nearly 30 percent tax on every barrel of oil coming out of the ground.

“This isn’t simply a tax on oil companies, it’s a tax on American consumers who are currently benefiting from low home heating and transportation costs,” Kirby added.

The White House unveiled a plan Thursday for a 21st Century Clean Transportation System, which the administration says will be funded “by a new fee paid by oil companies.” Obama would increase green transportation spending by $20 billion to “reduce carbon pollution, cut oil consumption, and create new jobs,” according to a White House fact sheet.

“That is why we are proposing to fund these investments through a new $10 per barrel fee on oil paid by oil companies, which would be gradually phased in over five years,” according to the White House. “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.”

Obama is also spending $2 billion on green vehicle and aircraft research, along with $400 million to make sure this green fleet can be safely integrated into America’s transportation system.

The federal government would essentially be taxing oil produced through hydraulic fracturing, or fracking — a method of pumping water, sand and some chemicals deep underground to extract oil and gas. The practice has been condemned by environmentalists.

Fracking has been responsible for virtually all the increase in U.S. oil production since the beginning of Obama’s first term in office. In 2009, the U.S. produced just 5.4 million barrels of oil per day, but by 2014 production jumped up to 8.7 million barrels per day.

The White House argues the oil tax would help ensure the long-term solvency of the Highway Trust Fund, which was plagued with funding problems because of falling gas tax revenues and other issues.

Congress did pass a $305 billion highway bill in December, but the Highway Trust Fund is still projected by the Congressional Budget Office to need $113 billion in additional funding to break even over the next six years.

“For the first time in years, the U.S. Congress recently passed a highway funding bill,” Kirby said. “The Administration had the opportunity to raise funding for our nation’s highways during that time. Why now instead of then?”

Obama is framing his infrastructure plan as a sort of second stimulus package. The White House noted the president’s plan “builds on the success the country has seen as a result of the American Recovery and Re-investment Act of 2009.”

Officials even noted “the $90 billion dollar clean energy investment” in the stimulus which they say “laid the foundation for a clean energy economy of the future, helping drive down the cost of wind and solar energy, expanding research for breakthrough technologies, and providing funding for transit and high-speed rail that reduce our dependence on gas-run cars.”



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