Blog Post

A Way to Give the Administration’s Oil Tax a Real Chance

Feb 5, 2016 | Alan J. Krupnick

The Obama administration has launched another broadside in its attempt to internalize the damages from climate change and address our aging transportation infrastructure by proposing a tax on oil (the details remain unclear) of $10 per barrel. The idea has long been championed by many of us at Resources for the Future, although we want the tax to be broad-based—that is, on oil, natural gas, and coal. Further, with oil prices so low, now is a good time to do it, although here the administration tarries and has a five year ramp up to the full tax.

Predictably, the Republican Congress says this part of the budget package is dead on arrival. As this is no surprise, the administration’s proposal comes off as purely political, somewhat trivializing the urgent need for something like this. 

Hopefully there is still time to regroup and give the Republicans something that will be harder to dismiss by taking another page from the economists’ playbook: tax neutrality. The country would gain doubly in efficiency if the tax were paired with reform of corporate taxation, including a reduction in the corporate income tax. And the political costs of rejecting such an approach out of hand could be high enough to at least give a pause to opponents. Of course, there are lots of details here—for instance, the tax is only on oil while corporate tax reforms would be economy-wide. But even so, the president would have an opportunity to advance an idea that would provide real benefits to the country and would be hard, or at least harder, to ignore.