Indeed, the recent rise of gas prices seems to be slowing the economy. So raising taxes on oil companies does seem to be a bad move if it will result in higher gas prices. But is that what would really happen? Probably not.
That’s because it matters what assumptions you make for the price of oil. The higher the price of oil, the less tax breaks matter. At $10 a barrel, you might care about the size of the government subsidy. At $100, the tax break is just icing. Back when the API did the first of their studies in August of 2010, the price of oil was about $80 a barrel. Now it is around $110. So you would expect the effect on production would have gone down.
And remember we are just talking US production here. Gilbert Metcalf, an economics professor at Tufts who has studied the relationship between oil and gasoline prices, says that when you look at world oil markets, the reduction in supply from removing the U.S. tax subsidies for oil companies will be “imperceptible.” “This will have no affect on the price of oil or gas,” says Metcalf.