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Obama Proposes Controversial New Tax on Oil

  • Jim Randle

A pump jack stands idle in Dewitt County, Texas, Jan. 13, 2016. Across oil fields from Texas to North Dakota fears are growing that the sharp drop in oil prices could drive many shale producers out of business.

A pump jack stands idle in Dewitt County, Texas, Jan. 13, 2016. Across oil fields from Texas to North Dakota fears are growing that the sharp drop in oil prices could drive many shale producers out of business.

President Barack Obama has proposed a controversial new $10 a barrel tax on crude oil sold in the United States in the budget he presented to Congress Tuesday.

He says the tax revenue would accelerate "a transition toward a cleaner energy economy" by improving transportation and boosting research and investment in "energy sources of tomorrow."

Obama recently told journalists that oil prices are certain to eventually rise from their current low levels. That means investments in alternative fuels and more efficient methods of transportation could protect Americans from the kind of economic shock seen in many previous times of soaring oil costs.

The proposal drew strong criticism from the head of an oil industry trade group, the American Petroleum Institute, who called it a "radical, anti-energy agenda of tax hikes and new regulations" that "could harm consumers, destroy jobs and raise energy costs.

Impact on prices, consumers

API President Jack Gerard called the tax an "unprecedented" action that would boost the cost of crude oil by 30 percent. He said that would raise gasoline costs by around seven cents a liter. Gerard said the tax hike would raise the cost of food and "everything that relies on transportation to get to consumers."

The environmental group Friends of the Earth said it is time to build "a sustainable transportation system" and "Big Oil should foot the bill." In a note to journalists, FOE campaigner Lukas Ross said "Oil companies have profited for generations from government-funded roads as well as from billions of dollars of tax breaks every year. Putting a fee on oil and other dirty fuels is exactly the mechanism we need to transition the U.S. towards a new energy economy and avoid the worst impacts of climate change."

Strong opposition in congress

Senator Lisa Murkowski, from the oil-producing state of Alaska, called the proposal "disappointing but not surprising." Murkowski heads the Senate Energy and Natural Resources Committee, and called the tax proposal Obama's latest effort to "damage our nation's oil production." Other Republican members of Congress also oppose the new tax.

Analysts quoted in the financial press say a tax on crude oil has no chance of getting through Congress where Obama's Republican political opponents control both the House and the Senate. Republicans favor lower taxes and fewer regulations.

The debate comes as oil prices have fallen from above $100 a barrel to around $30 a barrel. The sharp decline has brought thousands of job layoffs to the oil industry, reduced the number of drilling rigs deployed, and cut investments in energy exploration and infrastructure.

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