Two significant documents were delivered to Congress last week: President Obama’s Fiscal Year 2017 budget and U.S. Federal Reserve Chair Janet Yellen’s semiannual Monetary Policy Report.
The President’s budget is a $4.1 trillion plan containing $2.6 trillion in tax hikes. And it’s not surprising that it’s a repeat of his previous plans – more spending and tax increases. When it comes to the latter, one proposal in particular has garnered the most ink and discussion: a $10 per barrel tax on oil produced in the United States.
As always, it will be consumers on the losing end of this deal, which many on Capitol Hill have called “dead-on-arrival.” And for good reason. It’s estimated that President Obama’s $10 per barrel tax on oil would add almost 25 cents a gallon to the cost of gasoline, hitting middle class and low-income families particularly hard. But it’s not just the pump where Americans will feel the pinch.
According to the non-partisan Congressional Research Service (CRS), “Since it is likely that the oil fee would be shifted forward by the oil companies, and since petroleum products enter into many products, consumers will likely see higher prices, not only directly for gasoline and other consumer products, but, in general, for many products to varying degrees.” The result? As the CRS puts it, “In general, the fee would likely result in decreased discretionary consumer purchasing power, which may translate into lower expected economic growth.”
In her prepared testimony to Congress on the Monetary Policy Report, Fed Chair Yellen noted her concern that “financial conditions in the United States have recently become less supportive of growth…These developments, if they prove persistent, could weigh on the outlook for economic activity.”
These cautionary words should make Capitol Hill pause and take notice.
Despite the rosy economic picture the president tried to paint in his State of the Union address last month, the economy is not as robust as it could – and should– be. What is needed are pro-growth, pro-investment policies that will get this nation on the right economic path and help struggling families get back on their feet. An oil tax is neither of those and should rightfully be shelved by Congress.
What will help is both parties coming together and passing tax reform that aims to promote growth and investment in our nation’s economy. Unfortunately, there are differing views on the direction reform must take.
In past proposals, Democrats, and even some Republicans, seem to think that the answer is to target a favorite scapegoat and convenient soundbite: the oil and gas industry. These punitive measures typically involve taking away supposed-subsidies the industry receives. Setting aside the fact that in reality, they receive no direct payment from the government (subsidy) but rather take deductions that industries across the board take, it’s simply bad tax policy.
There is no economic sense in targeting one of the most vibrant sectors of our economy. In fact, this is a sector of the economy that supports millions of jobs and invests billions of dollars in domestic capital spending.
Higher taxes, whether in budget proposals or legislation, are never the route to true tax reform. Nor is singling out industries, no matter which industry. It is easy to fall into the tempting rhetorical trap of “oil tax” and “subsidies.” It’s a convenient soundbite that sounds great on the Senate floor or campaign stage.
But it won’t help Americans working hard to provide for their families or American businesses struggling to compete globally and here at home. What will help is Congress coming together and passing simplified, uniform comprehensive tax reform. The American people deserve nothing less.