Oil has been spewing into the Gulf since April 20th and although the media is reportedly limited in their ability to report on the spill, many of us are well aware of the severe environmental implications. With oil washing up onto the American coast, and reports of massive underwater plumes, it is hard to imagine things could get any worse. However, the oil spill will have a long-term financial affect on the oil industry, businesses and millions of taxpayers.
Obama and Oil Taxes
President Obama has attempted to increase taxes on oil companies several times without success. In Obama’s first budget proposal he recommended a $31 billion tax on oil and gas companies, but Congress never enacted any legislation with the tax. Last year, the House of Representatives did pass cap and trade legislation designed to limit pollutant emissions and auction allowances to polluters, but the bill has stalled in the Senate for months. However, due to the strong public reaction to the BP oil leak Obama may finally make it happen.
Congress has been reluctant to pass any legislation to increase taxes on oil companies, but last week the House of Representatives passed a bill that would increase the current per barrel tax on oil from 8 cents to 34 cents. The Senate is now considering similar legislation, and there are rumors that the tax could be as high as 41 cents per barrel. These new taxes could potentially raise more than $12 billion in federal revenue over the next decade.
Drilling, a “Short-Term Bridge” to Clean Energy
Although he proposed tax increases on oil and gas companies, President Obama also supported continued offshore drilling during an address in March. Since the Gulf explosion the President has pulled back on some of those plans; clarify that drilling should only be used as a “short-term bridge” to clean energy.
When BP announced they would help reimburse Louisiana fishers for lost income due to the oil spill, taxpayers were glad to see the multinational corporation helping out smaller businesses. However, many fishers are becoming frustrated by the hoops they must jump through to collect payments from BP, while their own bills pile up. In order to receive assistance, each fisher must turn over three years of tax records, which is presenting a problem for some. In small town communities, it is fairly common for temporary workers to get paid in cash, moving from one fishing boat to the next when work is available, and some of the local small businesses are struggling to get the records needed for relief from BP.
Cleanup Efforts and Job Creation
Many fishing jobs were lost due to the oil spill, but the cleanup efforts have resulted in a significant number of new jobs in related industries. BP reportedly has over 25,000 workers and independent contractors working on the Gulf cleanup project. In addition to this direct job creation, many local businesses are also seeing related economic boosts. Hotels that are usually only half full during this season are hanging up “No Vacancy” signs, and other businesses such as restaurants are also seeing sizable customer increases from all the cleanup personnel.
State Oil Taxes
Plenty of states – including Alaska – already tax oil companies; and those states that do not are working to enact taxes on oil companies while public opinion is still strong. My home state of California is a prime example. The state Assembly has already put together a proposal to raise an estimated $1.2 billion per year in new oil company taxes. However, this is a very controversial issue as many assert doing business in California is already difficult because of all the additional taxes levied on businesses and corporations.
Short and Long Term Effect on Consumers
If taxes are indeed raised on oil companies, many experts assume this tax will be passed on to consumers. Several politicians are adamantly denying this prediction, but large oil and gas companies will undoubtedly find a way to pay these additional taxes without affecting their profit margins. Additionally, the oil leak will likely have an impact on the long-term supply of available usable oil, which could lead to even higher prices on consumers.
Long Term Financial PredictionsThere is no way to predict the exact implications the Gulf oil catastrophe will have on American taxpayers, as no one knows how long it will take BP to stop the leak. On one hand, the temporary increase in cleanup-related jobs is helping many people financially. On the other hand, the environmental devastation will likely hurt the Gulf for years, if not decades, to come. With a pivotal midterm election in November, the future of any oil company tax increases could be in question. Oil taxes are very controversial, and public opinion will play a major role in how Congress decides.