Rising Fuel Prices

As recent as early October, the price of oil was below $80 a barrel. On February 22, it was just above $106. That's a nearly 40 percent increase in four-plus months.

At the gas pump, the national average price of a gallon of gas, according to Energy Information Administration data, came in at $3.65 on February 20. That was up by 30 cents a gallon versus early January.

Obviously, two big issues regarding prices at the gas pump are the price of crude oil and taxes. In fact, API's Chief Economist John Felmy noted on February 22 that 84 percent of the price of gasoline are accounted for by crude oil and taxes.

Interestingly, policymakers can help on both fronts. First, and most obvious, is the tax issue. Quite simply, rolling back taxes on the energy sector will reduce costs. Consider that the average federal and state tax on a gallon of gasoline is 48.8 cents. For good measure, the President and various members of Congress need to stop the push for increased taxes on energy firms, as that will only reduce investment and production.

As for the price of crude oil, there clearly is an Iran fear premium at work. That is, the threat of the Iranian nuclear program and the potential reactions, including possible war with Israel, disruption of oil supplies as some 17 million barrels flow through the Strait of Hormuz daily, and how the U.S. might react, have pushed up oil prices. If Israel does take action, all bets are off as to how high oil might jump.

Beyond decisions made in terms of national security and foreign policy, policymakers can make a difference by removing obstacles and prohibitions on domestic energy production. A good place to start would be with H.R. 3408, which passed the House of Representatives by a bipartisan vote of 237-187 on February 16. As summed up in a House press release, the legislation would "require the Administration to move forward with new offshore energy production in areas containing the most oil and natural gas resources - including the Atlantic Coast, Pacific Coast and portions of the Eastern Gulf of Mexico;" open a small percentage of ANWR to oil and natural gas development; "encourage the development of 1.5 trillion barrels of oil shale in the Rocky Mountain West, and approve the Keystone XL pipeline."

Natural Resources Committee Chairman Doc Hastings offered a challenge: "As gasoline prices continue to rise to almost double what they were when President Obama took office and Iran continues to strain foreign oil supply, Americans are demanding action. Republicans are responding with this action plan to create jobs and grow the economy through new American energy production. The only question is, will the Democrat controlled Senate and President Obama stand in the way or become part of the solution?"

In the end, of course, more energy production, whether in the U.S. or any other nation, is positive for prices and the energy costs faced by U.S. consumers and businesses.

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Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His new book is "Chuck" vs. the Business World: Business Tips on TV.

Energy and President Obama's Budget

President Obama has been unfailing in his desire to punish the U.S. domestic energy industry. Of course, attacking so-called "Big Oil" might score some points with the president's political base, but in reality, it is an attack on the hundreds of thousands of people and the thousands of small firms working in the oil, gas and coal industries, for example, not to mention energy consumers, including individuals, families and businesses of all types and sizes.

This presidential hostility came through loud and clear, once again, in the proposed Obama budget.

Over ten years, the oil, gas and coal industries would get his by an estimated $29.6 billion in tax increases. These are listed as the elimination of "fossil fuel preferences" in the budget, but they amount to nothing more than eliminating legitimate tax deductions and measures.

And at least another $110 billion in tax hikes are proposed that would fall disproportionately on the energy industry.

In the end, this turns out to be the same list of energy tax increases that the President has been long pushing. Of course, this agenda of jacking up taxes on domestic energy producers is an odd choice if the President truly supports increased energy production at home, and the goal of boosting job creation.

The reactions from key industry voices were on target.

For example, Jack Gerard, President and CEO of the American Petroleum Institute, warned, "Increasing our taxes would push oil and natural gas investment overseas and diminish job-creation and economic activity here at home. After a handful of years, we would see less domestic energy production - particularly of natural gas - more imports, fewer new jobs, and, eventually, depressed tax, royalty and other revenues."

And American Fuel & Petrochemical Manufacturers President Charles T. Drevna said, "It's disappointing that President Obama is once again proposing to bar companies that produce oil and natural gas and that manufacture fuels and petrochemicals from taking the same business tax deductions as other industries. If the president's proposal is enacted by Congress it will drive up energy costs for American consumers and prevent the creation of desperately needed new jobs for American workers."

But given the President's recent decision not to approve the Keystone XL pipeline, we should not be surprised by anything this administration does to deter expanded energy production and the jobs that come with it.

Finally, and as usual, whenever government decides to tax or regulate, it is small businesses that tend to get hit hardest. Consider the following from a February 13 Wall Street Journal report on the proposed energy tax increases: "But for some smaller oil and gas producers, some of the tax benefits play a larger role, because those producers have less capital in a capital-intensive industry."

There's no such thing as "Big Oil." Instead, it's just the many businesses of varying sizes and their employees that work in the energy industry ultimately serving residential and business energy needs. And all of these are under assault by the Obama budget plan.

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Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His new book is "Chuck" vs. the Business World: Business Tips on TV.