Obama's Plan for $10 Gas
American drivers are angry at having to pay $4 a gallon for gas, and understandably so. Their anger is often directed at the oil companies that supply the gas. It should be directed at Barack Obama instead.
From the beginning of his appearance on the national stage, Obama has focused on the goal of driving up energy prices with the idea of "weaning" America off fossil fuels. He has succeeded in driving up prices, all right, but not in reducing dependence on fossil fuels. According to "The Outlook for Energy 2011," fossil fuels now supply 80% of global demand. That percentage will remain unchanged through 2030 despite hundreds of billions in subsidies squandered on wind and solar.
Nor has Obama succeeded in reducing our dependence on foreign sources of oil. According to the American Petroleum Institute imports now amount to some 11 million barrels per day or 56% of deliveries. That compares with 35% in 1973 and 42% in 1990. Despite imposition of strict mileage standards and the burden of higher prices on the consumer, the level of imports has not declined significantly under President Obama.
In fact, Obama's energy policies have created the worst of all possible worlds for American consumers: higher prices and continued dependency on imported oil.
Now, in the ongoing deficit reduction talks, the President is insisting on cutting $45 billion of incentives for oil and gas companies over the next decade. The Democrats like to portray these incentives as "special breaks" for Big Oil, but in fact they are no different from expensing and depreciation allowances enjoyed by most manufacturing businesses. In reality, Obama's proposal has nothing to do with "special breaks" for oil companies. Instead, it is a "special tax" aimed specifically at oil and gas.
The proposed $45-billion tax on America's oil companies would be in addition to the excessive and disproportionate taxes already paid by the industry. The oil majors already pay $35.7 billion in taxes annually. That's 41.1% of net income, far more than the average of 26% for S&P500 companies outside the energy sector (2009 figures). Between 1980 and 2009 American oil and gas companies paid $1 trillion in taxes, and at current levels American producers will be paying another $714 billion in taxes over the next decade.
No unbiased observer can say that the American oil and gas industry is under-taxed. And yet Obama wants to pile on more taxes with the aim of bringing some of our nation's greatest corporations under the heel of government control.
Oil and gas is one sector where American companies still enjoy a distinct advantage over foreign competitors in the form of superior management and technological know-how. It is one area, in other words, where American workers are able to compete effectively with foreign workers. A $45-billion tax would go a long way toward destroying that advantage. Obama's energy tax would also reduce funds available for exploration and production, thus reducing output and raising the cost of energy for American consumers. It would reduce domestic production, thus exacerbating our balance of payments problem. It would put American energy companies at a disadvantage to foreign competitors, thus reducing the number of jobs for American workers in the oil and gas sector.
This, of course, is exactly what the President wants. By driving up gas prices, Obama hopes to force Americans to purchase hybrid and electric vehicles. And by reducing the size and influence of America's oil and gas companies, Obama plans to make these companies even more susceptible to government control and de facto nationalization.
Just how high gas prices will go is a matter of serious debate at the present time. Despite recent declines and futures prices that suggest the possibility of further declines in the near term, the price of oil may be headed up. Respected energy analysts have suggested that oil may hit $170 a barrel by spring 2012. That would translate into $7 a gallon at the pump.
If American drivers are angry at paying $4 a gallon, they would be furious when gas hits $7. But Obama knows that their fury will be directed at oil companies. At that point he could score points by proposing another windfall profits tax, enough to drive prices up even further.
For this President the goal all along has been $10 gas, and he is closer to achieving it than most observers realize. If Obama manages to negotiate $45 billion of new taxes on oil companies, those taxes will be passed on to consumers in the form of higher prices. Combine that with the spike in global oil prices that many predict and further "windfall" taxes on oil companies once they have been forced to raise prices at the pump, and you have $10 gas.
The best part for Obama is that he gets to pretend he had nothing to do with it. After all, he has been a leading critic of "greedy oil companies." He has supported one proposal after another for "punishing" Big Oil. Despite the fact that oil companies have been pleading with the Obama administration for the chance to drill offshore and bring down prices, they are the guilty ones, and he is somehow on the side of the struggling middle class.
Yes, and he is also the chief architect of $10 gas.
That's what Obama is trying to do with his $45 billion in new taxes. Since America's oil companies already pay 41% of their profits in taxes, piling on more taxes has nothing to do with "fairness." It is merely a step toward one of the left's cherished goals: Chavez-style nationalization of the energy industry and ultimately of the entire economy.
Conservatives need to draw a line in the sand on Obama's revenue proposals: no new taxes on anyone. No new taxes on oil and gas, financial managers, or producers of private jets. All of these are bad ideas that will lead to less investment, less growth, and less job creation. There is more than enough waste in the federal budget to cut $4 trillion over the next decade. Republicans should not let Obama get away with using this crisis to advance his purposes of nationalizing the American economy.