Phil Kerpen
June 24, 2010

Despite President Obama’s repeated promises that he will make BP “pay every dime” for the costs of clean-up and economic damages, 57 Democratic U.S. Senators voted for legislation that hides a sizable tax hike that will force taxpayers to pick up the costs of oil-spill response. The bill is the so-called extenders bill, opposed by Republicans for its tax hikes and because it increases the deficit, and the 57 votes means it remains stalled for now, because it needs 60 votes to overcome a Republican filibuster. The specific provision that breaks Obama’s oil spill promise is styled as “restoring Oil Spill Liability Trust Fund solvency,” and what it means is an $18.3 billion tax hike on gasoline, diesel fuel, and heating oil. This provision would break Obama’s promise and force taxpayers to pick up the tax for oil spill response.

The trust fund dates back to the 1990 Oil Pollution Act, passed in response to the Exxon Valdez spill. The agreement back then, agreed to by the oil industry and Congress, was that in the event of a spill the responsible party would pay the clean up costs plus economic damages capped at $75 million. Any economic damages above that cap would be paid out of a special federal government account, the Oil Spill Liability Trust Fund. It was funded by an 8 cents-per-barrel tax on crude oil produced in or imported into the United States. Because the price of crude is a major factor in the retail price at the pump, the bulk of the tax is passed along to consumers.

In theory, the fund is now needed less than ever, with the newly established precedent that the $75 million liability cap will effectively be discarded in favor of the open-ended liability BP has now accepted and the $20 billion commitment they have made as a down-payment. In fact, now might be an excellent time for a fundamental reform that officially scraps the now-obsolete fund in favor of a private reinsurance pool that would build real assets to pay for rare crises like the current BP spill.

Instead, in a desperate grab for revenue, the extenders bill includes a big hike in the tax paid to the fund from 8 cents-per-barrel to 49 cents-per-barrel. The total 10-year price tag of this tax hike is an estimated $18.3 billion. Because the tax applies to every barrel of crude oil in the country, it will almost entirely be passed down the chain of production and ultimately fall on retail customers—in other words, precisely the taxpayers that Obama claimed would never be forced to pay even a single dime for the Gulf clean up.

The tax would likely increase the cost at the pump by only about 2 or 3 cents per gallon, which on its own isn’t going to break the bank for families. But if Obama can successfully rely on the fiction that a tax on crude oil isn’t going to be passed on to consumers, then he can smooth the way for a whole slate of other pending energy tax hikes in his budget, including the biggest hidden energy tax hike of all: cap-and-trade. The Kerry-Lieberman bill includes a much bigger gas-tax-in-disguise of between 25 cents and a dollar per gallon in the form of a “linked fee” that refiners will pay. On top of the 2-3 cent tax hike for oil spill response and several other similarly sized proposed energy tax hikes, the pump jump could be very painful for the middle-class Americans Obama told on the campaign trail would not see their taxes increased.

Fifty-seven Democratic Senators have now made clear not just that they support hidden energy taxes, but they specifically support taxes that force taxpayers to pay for oil spill response, to the tune of $18.3 billion. If the bill somehow picks up three more votes and makes it to the president’s desk, keeping his promise would require vetoing the bill. But somehow a broken promise seems more likely than a veto.

Mr. Kerpen is vice president for policy at Americans for Prosperity.