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Breaking Down the Barrel Tax

February 2016 Washington “Insighter”

As part of his final budget submission, President Obama has proposed a new “21st Century Clean Transportation System” program, to be funded by a $10.25 per barrel fee on oil production.

The reaction was swift.

Pundits from both sides debated it on cable news.  Organizations and lawmakers put out press releases jeering or cheering the proposal.

But now, two weeks later, the barrel tax is off the front page.  Even the transportation lobby, beneficiaries of the proposal, has largely shrugged its shoulders at it.  Should companies in the oilfield forget it was even proposed?

While there is no way such a proposal moves forward in today’s environment, do not forget about this notion moving forward this election year and beyond.

Budgets are a lot of things: moral documents, lists of priorities, messaging pieces, etc.  But more than anything, a budget is a political document, no matter which party occupies the White House or the Halls of Congress.

That is even more true in the middle of an election when the White House and the Senate are up for grabs.  In certain races, a contrast issue like the barrel tax can be a huge driver, especially with getting younger voters to the polls.

Beyond the political rationale for the proposal, does it have any policy impact after November?

Much like oil price forecasts, the crystal ball is less clear on the answer to that question.

While a large part of that answer depends upon what happens in November, as far as Congress goes, look for the barrel tax to become the new potential “pay-for” floated out every time Congress has to address a debt ceiling or spending crisis.  This alone will keep the tax in the news.

Within the anti-oil and gas movement, the proposal represents something much larger.  As a spokesperson for the organization 350.org stated: “The plan opens the door to more creative ways to get the fossil fuel industry to finally pay up…”

With that perspective, PESA member companies should assume that calls for the barrel tax – or something like it – will live on beyond this year’s legislative and campaign debates.

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