Planned Oil Tax Hike is About Raising Revenue, Not Clean Up

Heritage.org
May. 25, 2010

Instead of concentrating on the cause of the oil spill, lawmakers on Capitol Hill appear to be focused on liability limits and oil tax increases. The White House and some Members of Congress are pushing for a one-cent increase per-barrel of oil produced -- from eight cents to nine. In reality, this is an indirect gas tax that will be passed onto the consumer. Currently the direct federal gas tax is 18.4 cents per gallon with the mean state tax being 27.2 cents per gallon. The purpose of the newly proposed tax hike is to increase the amount of funds available in the Oil Spill Liability Trust Fund and ostensibly collect more money for the clean up. But the real purpose is to make political ends meet.

Although it doesn't sound like much, the Wall Street Journal reports that "The one-cent increase would raise about $5 billion over 10 years to help offset the cost of the tax package, which is nearing $200 billion. The tax could go to 10 cents a barrel in 2017."

Wait. What tax package? Politico says, "The added revenue is coveted by tax writers, still struggling to find close to $50 billion in offsets needed to pay for an election-year package of infrastructure investments and popular tax break extensions." This makes one wonder: is this about cleaning up the Gulf or making ends meet for other political agendas?

This is another opportunity for the government not to let a good crisis to go to waste. At a time when government spending has run rampant, why not try to use the oil spill to raise some revenue for other spending objectives.

Regardless, BP is on the hook for all direct cleanup costs and has repeatedly said it will cover all legitimate claims. 1,000 of 6,700 claims have already been paid, and no one knows what the total cost is going to be. We should have a better understanding of how much the oil spill will cost before making any policy decisions. Lack of funding or resources isn't the problem.

Other than clean up and containment, the primary focus should be on the cause. We have some information as to what went wrong. The rig's emergency shutoff valve reportedly had a dead battery and questions are arising over Haliburton's job of cementing the well. These are the still a number of questions without answers as to what caused this spill and answering them should remain a priority.

An encouraging development occurred on the Gulf oil spill crisis over the weekend. The process of inserting a tube to siphon oil from the ocean's floor is working to capture approximately 1,000 barrels of the leak. This is about one fifth of what's pouring out but BP officials are optimistic they can capture most of it using this technique. Along with finding a fully effective solution to capping the leak, the primary focus must remain on finding the cause(s) of the spill and cleaning up the mess expeditiously and successfully. This tax suggestion isn't about the clean up or protecting against the cost of future clean ups. It's another political shell game.