By William F. Shughart and Jacob Fishbeck
April 5, 2016
Early last month, President Obama called for a $10-per-barrel tax on crude oil, the revenues of which would fund transportation programs aimed at reducing greenhouse gases. Oil companies will shift these taxes on to customers as much as possible, though. At a time when the economy is already slowing down, consumers cannot afford that extra burden.
Because drivers tend to purchase nearly the same amount of fuel even when prices rise, sellers can pass most of an oil tax on to them. Jack Gerard of the American Petroleum Institute has warned that the tax will increase prices at the pump by roughly 24 cents per gallon. And although crude oil is trading around $40 per barrel—lows not seen in over a decade—the tax increase could not come at a worse time. The U.S. manufacturing sector, which relies on cheap oil, already is in recession, and the rest of the economy is not far behind.
Low gas prices were supposed to be a boon for consumers, but December’s weak retail sales numbers showed that they were watching their pocketbooks closely during what would normally be a big spending season. January’s numbers were unusually good, but only because of a cushiony seasonal adjustment. Instead of going to retailers, the “cheap gasoline dividend” is mostly going toward paying rising healthcare costs and rents, both of which have been outpacing overall price inflation.
The only indicator pointing to a healthy U.S. economy is the unemployment rate, but that number is misleading. The labor force participation rate remains near 30-year lows, which artificially suppresses the unemployment rate. If as many people were in the labor force today as were working or looking for jobs in December of 2007, the unemployment rate would be 9.63 percent.
Given the sorry state of the economy, consumers, manufacturers, and transportation companies will be hit hard by the increase in fuel prices.
In addition to offsetting the benefit of low gas prices with a new tax, President Obama plans to waste the revenues on programs such as mass transit and high-speed rail, neither of which improve transportation efficiency or reduce greenhouse gas emissions by any significant amount.
Mass transit could potentially work in a free market, as bus and rail companies would operate only where they expect to find ample demand. But most mass transit systems in the United States are sustained by taxes, a virtually guaranteed source of revenue. As a result, mass transit systems serve areas even where they are not needed, carrying empty seats and failing to cover their construction and operating expenses.
It cost $1.05 for mass transit systems to move the average passenger one mile in 2012—the highest price tag for any mode of transportation. Fares collected from riders amounted to just 24 cents per mile. Taxpayer-financed subsidies made up the difference.
High-speed rail also suffers from low ridership and cost overruns. The infamous high-speed rail line connecting San Francisco and Los Angeles originally was expected to cost $45 billion. It is now expected to cost around $70 to $98 billion. The train probably won’t reduce carbon emissions either: If ridership is low, as ITS Berkeley predicts, the rail line will never make up for the greenhouse gases released during its own construction.
High-speed trains also don’t relieve traffic congestion. A feasibility study of the proposed rail line between New Orleans and Baton Rouge shows that the project will take only two percent of cars off Interstate 10 per year. As the regional population grows, the train will be unable to offset increases in traffic or carbon emissions.
Finally, some of the revenue from Obama’s gas tax would go to the development of self-driving cars. But that technology already is promising enough for Google, Ford, Volvo, Mercedes, Nissan, and many other car companies to invest heavily in it without subsidies. Taxing oil to pay for these ventures is a complete waste of taxpayers’ hard-earned money.
With prices at the pump below $2 per gallon in many places, our lame-duck president saw an opportunity to solidify his “green” legacy by soaking “Big Oil.” But this tax will raise gas prices north of $2, and the new revenue will be squandered on dubious transportation programs. Piling taxes on consumers and industry when the economy is losing steam is not the way to improve our transportation system or the environment.
Jacob Fishbeck is a policy analyst at Strata, a policy research center in Logan, Utah. >William F. Shughart II, research director of the Independent Institute, is J. Fish Smith Professor in Public Choice at Utah State University’s Huntsman School of Business and a senior fellow of Strata.
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