How much Obama’s oil tax would add to the price of gasoline
© Provided by MarketWatch Here’s how much Obama’s oil tax would add to the price of gasoline
It’s obvious that a $10-a-barrel tax on oil would translate into higher prices for gasoline at the pump. But how much higher?
The White House on Thursday said President Barack Obama will propose a $10-a-barrel tax on each barrel of oil to pay for clean transportation projects. The tax, which will be part of the budget request Obama sends to Capitol Hill next week, would be paid by oil companies and gradually phased in over five years. The measure, however, isn’t expected to go far.
But if it were to be enacted, it probably wouldn’t be the oil companies that feel the most pain.
“This proposal would trickle down and be a $10 per barrel tax on motorists—or 20 to 25 cents per gallon on refined fuels,” said Patrick DeHaan, senior petroleum analyst at GasBuddy.com. “To me it’s clear: this is not something oil companies are going to absorb.”
Opinion: Oil-tax proposal steps on White House jobs message .
And the impact of the tax would grow over time. DeHaan created a chart to show just how big a toll he expects the tax would take on gasoline consumers through 2023, if it were passed.
“As with almost every tax increase on fossil fuels, whether at the state or federal level, it will likely be completely passed to consumers in the years ahead,” he said.
And it won’t just impact gasoline prices, but also diesel, jet fuel, heating oil and others, DeHaan said. “It could stifle production to some degree, though to a lesser degree as long as the tax applies to imported oil as well.”
The proposal comes at the worst time for the oil market, which has already seen prices drop by more than 70% from their highs above $106 in June of 2014. On Friday, West Texas Intermediate crude settled at $30.89 a barrel.
Read: This is how the oil rout’s ‘endgame’ might play out .
A global glut of crude supplies cratered prices in the last year and a half, and global production has yet to show any significant declines as major oil producers play a game of “you cut first” with output amid a battle to retain market share.
Also see: Oil output barely dented despite crude’s plunge
It’s a “time of fierce competition in the global oil market and heavy job losses in the industry,” said Brian Milne, energy editor and product manager at Schneider Electric.
Earlier this month, BP PLC said it would cut another 3,000 jobs by the end of 2017 after reporting a full-year loss of $5.2 billion. Royal Dutch Shell this week reported its worst profits in over a decade.
For an industry that has already lost 60% of its gross income, it doesn’t make sense to “slap a tax on it that would take another 10% of their gross income,” said Charles Perry, chief executive officer of energy-consulting firm Perry Management.
That will eventually result in a “mass plugging of the many already marginal wells,” as well as the “need to expand the network of bankruptcy courts,” he said.
So why bring up the prospect of an oil tax right now?
Obama is adamant about the advantages the tax will create . “We’ll look back and say that was a smart investment. It’s right to do it now, when gas prices are really low,” he said Friday.
Read: Oil-tax proposal steps on White House jobs message
Milne said Obama may think he can “slip the tax through…without many realizing that they’re paying the government more to fuel their vehicles and warm their houses” because oil and gasoline prices are low right now.
On Friday afternoon, the average price for regular gasoline at pump stood at $1.747 a gallon, according to GasBuddy. That’s down 40.5 cents from last year’s average of $2.152. Gasoline futures also dropped below $1 a gallon on Friday for the first time since late 2008.
Read : Gasoline prices may be about to spike
The tax is “certainty a hot topic,” said DeHaan. “Motorists should be eyeing this carefully.”
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Once again we see Obama trying to steal your earnings and give it to his buddies in the form of government subsidies that distort the free market. Say no to Obamas corporate welfare for campaign donors.
Ok so prices are low now, but as soon as someone sneezes in the middle east, or north Korea gets crazier, or Iran goes rogue, or any of the dozens of other things that can affect the price of oil happens, then is the tax repealed? Hell no! Why not just let us enjoy these lower prices while they last instead of just jumping to find ways to take our money?
I've always been told that low gas prices = bad economy and possible recession. I'm by no means an expert so I don't know whether these taxes whether it's target is on consumers or oil companies are bad or good but I do know that low oil prices impact jobs here in America.
Can someone explain how taxing oil would be bad for the economy. I'm not talking about whether consumers will need to pay more at the pump being bad for consumers. We already know that people would prefer not to pay higher taxes in anything. I'm specifically asking how the economy as a whole will be affected by this plan.
It means building and supplying goods and services will cost more and that makes us less competitive with the rest of the world. Shipping your goods will cost more heating your factory will cost more. And of course it means the consumer has less money to spend on the things he wants to buy and more goes to the government.
Okay - but since the Saudi's are already in a pricing competition they've kept their pricing so low in the hopes that the competitors won't be able to sustain the low prices and will have to eventually go out of business. In this effort the Saudi's are re-directing funds to accommodate the reduction in revenue and there is a fear that their economy is in danger.
So, if the oil prices are already low aren't we already at risk of not being competitive?
How does raising your price make you more competitive? I'm glad oil prices are low. That's supply and demand in action.
I understand supply and demand and pricing competition. What I'm specifically asking because I truly do not know is whether it is bad for the economy to tax oil thereby increasing the cost when oil prices are so low. I'm asking what's best for the economy and by default the country as a whole. It's a we question. Not a me question - I already know the answer to what's best for me (lower prices).
Maybe I'm not using the correct terminology for my question.
I concur with Jennilee, the consumer catches a break for the first time in years and the Government wants to add it to it's Bank of Broken Dreams.
As She notes, a blip on the radar somewhere and the pricing will shoot right back up. Let the consumer enjoy the lower pricing while they can, tomorrow is another day.