What a $10 oil “tax” would look like

(Also on investing.com as Here’s The Real Impact Of A $10 Oil Tax)

Late last week, President Obama unveiled a $300 billion transportation infrastructure plan. According to information released by the White House, this plan is part of the budget that the President will soon present to Congress, and it includes billions of dollars of money earmarked for “investments” in mass transit, high-speed rail, self-driving cars, and other clean transportation initiatives.

The nation’s transportation infrastructure has long been in need of improvement – both physically and financially – but the big news is how the White House proposes to pay for it.

The plan calls for the government to charge a $10 fee on every barrel of oil. The White House described it as a “surcharge that would be paid by oil companies.” Politicians have already started calling it an increase in the gasoline tax. Currently, the federal gasoline tax is 18.4 cents/gallon with states levying anywhere from 7.5 cents per gallon to 39 cents per gallon (the national average is 26.49 cents per gallon). In fact, a fee per barrel of oil is not the same as the gasoline tax.

It is unclear how a fee per barrel of oil revenue raising program would work. The White House seems not to have thought through the logistics at all and when asked, officials have only said that, “the fee would fall on oil companies” but that “it wouldn’t be charged at the wellhead.” In fact, it seems like the fee would actually be levied on refined products rather than crude oil. According to the National Economic Council, exported oil products would not be subjected to the fee, although it would apply to all imported oil products.

If the plan is actually to charge a $10/barrel fee on refined petroleum products, then the plan would essentially cripple the American economy because it would incentivize American oil companies to export crude oil (which is now permitted since the crude oil export ban was revoked in December, 2015) at discounted prices on the global market in order to avoid paying the $10/barrel fee to refine the petroleum in the United States. The cost of gasoline and other refined products in the United States would rise. Essentially, the American people would find themselves in a situation in which oil would be everywhere, but not a drop to drink (or put in their cars).

The economic impact of this plan makes clear that the intent behind this so-called fee is not to fund transportation infrastructure but really to raise the cost of gasoline in order to encourage widespread adoption of alternative energy technologies and fossil fuel-less methods of transportation.