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Rakesh Upadhyay

Rakesh Upadhyay

Rakesh Upadhyay is a writer for US-based Divergente LLC consulting firm.

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T. Boone Pickens On Obama Oil Tax: ‘’Dumbest Idea Ever’’

T. Boone Pickens On Obama Oil Tax: ‘’Dumbest Idea Ever’’

The Obama administration’s proposed $10.25 per barrel oil tax adds up to approximately $32 billion a year, and critics are coming out of the woodwork in defense of both the oil industry and end users who would foot the bill for transportation system reforms—but it may be a moot point since the effort will simply be killed off by Congress.

At the end of the day, this proposal is simply meant to start a discussion and possibly add to the Obama environmental legacy.

The proposal has sparked immediate backlash, with critics blasting it as an impossible production tax, the death knell for the already struggling oil industry, and an unfair policy that would render gas at the pumps more expensive for consumers. Related: Who Would Be The Best Presidential Candidate For Energy Companies?

Oil tycoon T. Boone Pickens has sensationally dubbed the Obama proposal “the dumbest idea ever.”

The $32 billion tax per year would be consistent with a production tax, tweeted Ed Crooks, the energy editor of The Financial Times.

Alaska Senator Lisa Murkowski, chairman of the Senate Energy and Natural Resources Committee, likewise criticized the tax, stating, as reported by Reuters: “The President is now apparently proposing yet another way of damage to our nation’s oil industry”.

According to Steven Kopits, Managing Director of Princeton Energy Advisors, at today’s prices there would be no material impact on either U.S. mobility or the economy. However, if WTI were to hit $115 per barrel, an additional $10 per barrel tax could push the economy towards a recession.

Federal gas taxes have not been raised since 1993, and with gas prices at an all-time low, such a proposal will be fairly easy to justify at the pump, and is unlikely to cause much of a fuss for end users. Consumers would pay an additional 22-25 cents per gallon of gas—with the final price still well under gas prices a year or two ago. Related: No Agreement on OPEC Meeting After Venezuela Meets With Saudi Arabia

According to the American Coalition for clean coal electricity report of June 2015, the lower and middle-income families, which represent 48 percent of the nation’s households, spend an estimated average of 17 percent of their after-tax income on residential and transportation energy. If we consider the households earning less than $30,000 before taxes, the expense rises to 23 percent of their after-tax family incomes, without considering any energy assistance programs.

If gas prices should climb higher, the proposed increase would further strain the budgets of the poor, whereas the rich are unlikely notice the price difference between $30 and $40 per barrel—or if gas prices should climb—between $75 and $85 a barrel. It should be noted, however, that the Obama proposal would redirect 15 percent of the reveneus to poorer households to offset higher energy costs.

On the flip side of this emerging discussion, there are also economists who believe a tax on fossil fuels will benefit the U.S. economy. They talk about taxing “negative externalities” that may lead to “market failure.’’

Harvard’s Gregory Mankiw notes that there are a “host of side effects’’ associated with oil and gas production and consumption, and economists view these negative side effects as a “kind of market failure” that needs to be addressed. Related: Despite Huge Losses Oil Companies Reluctant To Shut In Production

So will this proposal ever see the light of Congressional day? Not likely. History suggests it will be a major challenge. The first budget proposal of the Obama Administration sought to eliminate all remaining tax breaks for oil and gas producers, which would raise another $31 billion in revenue between 2010 and 2019, according to Reuters. That proposal has been shot down seven times already. For the latest budget proposal, Republicans are departing from decades of tradition by not even inviting the White House’s budget director to attend Congressional hearings to explain the budget.

The government taxes on fuels have largely remained unchanged since 1993, as Congress has been unable to arrive at an agreement to raise them. The current proposal of a 22-25 cents per gallon rise on top of the existing taxes is unprecedented, so most are viewing this as a legacy-maker and a discussion starter and nothing more—for now, at least.


The proposal has put the spotlight on the administration’s futuristic policy and has attracted headlines, but there is little chance that it will make it through Congress.

By Rakesh Upadhyay for Oilprice.com

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  • John Scior on February 10 2016 said:
    Why not pass a more reasonable 2-3 cent increase on taxes for fuel that would go directly toward repairing roads and bridges as was intended when these taxes were first implemented ??
  • Jay Miller on February 10 2016 said:
    Go for it Obama, but do so only on imported oil. Protect American Energy Jobs and tax imported oil.
  • Jimmy Hawkins on February 11 2016 said:
    Yes I wish my president would do it.Still would not be enough for the pain and loss of life these idiots that whine and cry over they oil.So what if we would have to pay I take great pleasure in seeing these fools that will stand alone with there makers in answer about there love for money and oil over human life suffer.Even if a little and it's short lived I thank my maker for it .Now if only I was a fly on the wall when they come before judgment. May God have mercy.
  • G. V. FOREMAN on February 11 2016 said:
    Pickens is “one” to criticize Obama's plan. This is the same asstute investor who just seven years ago was “hawking” wind power as the alternative energy source of the future. Then when his accolades surrounding wind power didn't pan out and were exposed for the “snake oil” proposal it really was-and is-he clammed up.
    Then he moved onto “hawking” natural gas advocating all commercial vehicles, primarily Class 5-8 trucks, be powered by natural gas because of it's abundance. In spite of the fact that natural gas trucks get 1/3 less mileage and production than diesel, the fact that natural gas trucks cost as much as 50% more than a comparably equipped diesel truck, the fact that natural gas “filling” stations were harder to find than “hen's teeth”, not to mention a host of other drawbacks, Pickens sung the blessings and rationale of purchasing natural gas vehicles.
    Now, when Obama-whom I've never liked and didn't vote for in either Presidential election-is proposing a “sane” source of financing for the Interstate Trust Fund, which has been “cash strapped” for ten plus years, that is financed with the same revenue base established some 22 years ago, Pickens has the "nerve" to describe the as “stupid”. Boone, you want to see stupid, look in the mirror!
    Really Boone? Boone, tell me one thing one can purchase today at 1993 prices!
    The fact is, per EIA, for 2014 net oil imports accounted for 27% of net U.S. oil consumption or approximately 5.22 Mmb/d. As such, the proposed $10 fee [http://www.eia.gov/tools/faqs/faq.cfm?id=727&t=6]
    would be paid for by oil importers, passed on to consumers via the retail price generating much needed revenue for the interstate trust fund. In the highly unlikely event importers refused to pay the tax and either reduce or refuse to export oil to the U.S., our domestic oil industry would benefit by increased domestic market share. Tell me, Boone, where's the down side?
    From where I'm sitting, this is a "win, win" for the US transportation system and possibly the domestic oil industry. Remember Boone, "oil feeds our families".
  • Frodo Thomas on February 13 2016 said:
    Why just oil? Let's put a $10,000 tax on new cars. Also food. And lastly we should be taxing people who have homes. 10% of home payments per year.

    All of this money can then be used to make everything free for everyone.
  • Ian on February 13 2016 said:
    The article does not say what the tax on oil will be used for. From what I understand this is to increase the penetration of renewable energy into the transportation sector, electric vehicles. The greater the percent of electric vehicles on the road, the less the demand for oil, the less the demand for oil the cheaper oil stays. Win win for those footing the oil tax bill.

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