News
The case of President Obama's missing oil tax
By Carrie Budoff Brown
Politico
April 17, 2012
Candidate Barack Obama pushed it hard in 2008: a tax on Big Oil company profits that would flow back to families in $1,000 rebate checks.
President Barack Obama acts as if the idea never existed.
With gas prices at record highs during the campaign, Obama backed the so-called windfall profits tax as the top item of his energy agenda, arguing it was needed once oil tops $80 per barrel. He ran TV ads in 18 states touting the idea and slammed GOP rival John McCain for taking oil company contributions “instead of taxing their windfall profits to help drivers.”
But four years later, as oil sits well above the $80 marker for the second year in a row and Republicans hammer Obama on energy policy, the idea is about as popular in the West Wing as $4-per-gallon gas.
Obama dropped the plan soon after winning office, when the economic crisis depressed oil demand worldwide, and he hasn’t talked about it since then. His aides also declined to address it on the record.
The arc of the tax from campaign cornerstone to administration dustbin illustrates the speed at which election-year promises can evaporate once the realities of governing set in. And it highlights Obama’s difficulty matching his get-tough rhetoric on oil companies with results, particularly as the Senate lost its moderate core, Republican allies on the issue turned into opponents and longtime Democratic sponsors retired.
“This is a campaign pledge that disappeared in 2008 and never made it back into the mix,” said Ben Schreiber, a climate and energy tax analyst with Friends of the Earth. “The truth of the matter is the president hasn’t used his megaphone to promote it.”
Within a week of Election Day, Obama’s transition team dropped the tax from its website, according to the American Small Business League, which tracked the changes. An unnamed transition official quoted in news reports at the time said the reason was that the price of oil per barrel had dipped to about $40. The abrupt shift infuriated progressives, who felt he’d abandoned the tax entirely and dubbed it Obama’s first broken campaign promise.
Instead, Obama focused on eliminating tax incentives for oil and gas companies, which the administration included in each of its four budgets.
“Ending unwarranted subsidies for Big Oil, which represent billions in taxpayer dollars each year that could be used more effectively, is clearly more achievable, and so it makes sense for us to put our focus there,” an administration aide said.
A second administration aide said the White House decided that it had a better chance at persuading Congress to repeal the tax subsidies than enact the tax on oil and gas company profits.
“Right now, the biggest oil companies are raking in record profits — profits that go up every time folks pull up into a gas station,” Obama said last month. “But on top of these record profits, oil companies are also getting billions a year — billions a year in taxpayer subsidies. … Think about that. It’s like hitting the American people twice. You’re already paying a premium at the pump right now. And on top of that, Congress, up until this point, has thought it was a good idea to send billions of dollars more in tax dollars to the oil industry.”
But even that proposal stalled in the Senate last month, as Obama struggled to win over voters to his response to high gas prices. A Washington Post/ABC News Poll released last week found 62 percent of adults disapprove of his handling of the issue.
Elgie Holstein, a senior campaign adviser on energy policy in 2008 and co-director of Obama’s energy transition team, said he could not recall any discussions during the transition on dropping one proposal in favor of another.
But he said the main reasons for doing so were likely the gyrating oil prices that would have made it difficult to structure the tax, an economic crisis that shifted priorities and a recognition that targeting the oil subsidies made more sense from a policy standpoint.
“In the big picture this is really all about how things in the course of a campaign season can change dramatically, so by the time a new president is inaugurated, the scale of the problems he or she has to confront changes dramatically and so do the solutions,” said Holstein, now senior director of strategic planning for the Environmental Defense Fund.
But critics, and even some allies, of the president say the White House made more of a cold political calculation in abandoning the windfall profits tax.
The tax made it too easy for Republicans to tag Obama as a liberal in the mold of former President Jimmy Carter, who enacted a windfall profits tax that Congress repealed eight years later, after it failed to produce a windfall for the government.
“Maybe they took some classes and realized it didn’t work,” said Peter Van Doren, a scholar at the libertarian Cato Institute who has studied the issue.
Hiking taxes on oil company profits won support from 55 percent of adults nationwide in an ABC News/Planet Green/Stanford University poll in July 2008. But repealing the tax incentives for oil companies has earned higher marks from the public in various polls over the past year.
Seventy-seven percent of Americans said redirecting the oil tax incentives to fund investments in alternative fuels would either help a lot or somewhat help in addressing high gas prices, according to a March survey conducted by Hart Research for the liberal Center for American Progress. Sixty-three percent said the same about taxing oil company profits.
And then there is the congressional math. The House is now controlled by Republicans. In the Senate, of the 12 Republicans who supported procedural votes on bills to tax oil profits at some point over the past seven years, only four are still in office.
Among the remaining group, the support has dissolved. Sen. Olympia Snowe (R-Maine) said in the “current economic climate,” she favors ending the tax subsidies rather than taxing oil company profits. A spokeswoman for Sen. Chuck Grassley (R-Iowa) said he only supported opening debate on the energy bill, not the tax itself. A spokesman for Sen. Susan Collins (R-Maine) could not say where she stood on the issue. A spokeswoman for Sen. John Thune (R-S.D.) could not be reached for comment.
The Democratic sponsors — Sen. Hillary Clinton of New York, Sen. Byron Dorgan of North Dakota and Sen. Chris Dodd of Connecticut — are gone, too.
The increasingly polarized Senate isn’t interested in repealing the tax subsidies, either. A bill to do so failed to advance last month on a 51-47 vote, short of the 60 votes needed to open debate.
If that bill can’t advance, then taxing the windfall profits stands no chance — which is why nobody is really expecting Obama to return to the proposal, even though the price of oil has been above that $80-per-barrel level that Obama identified in 2008 for five months. As of Monday, it was $102.
“No one is talking about it right now,” said Dan Weiss, director of climate strategy at the Center for American Progress.
That could change later in the month when the big five oil companies report their first-quarter profits, which could once again break records, Weiss said.
But even supporters of the proposal concede that prospects are dim. Not that they are happy about it.
“Barack Obama told the people of America that he would pass a windfall profits tax,” said Lloyd Chapman, president of the American Small Business League, which first drew attention to Obama’s shift away from the tax after his election. “Not doing so is one thing but to never explain why … is a staggering lack of integrity. Obama needs to do what he said he would do.”