<XTL: Promise and PerilThe Oil DrumDrumBeat: February 10, 2007>

44 comments on WSJ writes that gas taxes make sense

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Asebius on February 9, 2007 - 5:28pm Permalink | Subthread | Comments top

Taxes are a nasty solution in many ways. On the one hand, consumers don't like them. On the other hand, goverments are known to *not* be very efficient in their use of tax moneys.

I wonder if instead of *doing* something to inflate the price of energy (like levy taxes), we should stop exerting ourselves to keep the price down. Governments do a lot of things to encourage resource development.

Anything that keeps oil in the ground, will encourage the development of renewables as prices rise.

BTW, James Hamilton of Econbrowser came out yesterday in favour of a tax on imported oil and against ethanol subsidies.

Although powering our cars with corn is vastly more expensive than other alternatives, this choice seems to be tremendously popular with most Americans. If an economist were asked to justify this attitude, the argument would have to be that the market cost of imported oil vastly understates its true cost to us in terms of geopolitical implications of U.S. dependence on foreign oil. But if that is the underlying rationale, the preferred economic solution would not be a subsidy to corn producers, but rather a tax on oil imports.

The subsidies and economic inefficiencies they create result in taxpayers and consumers paying more than they would under a simple, direct import tariff. A tariff would also produce strong incentives not just for ethanol production but also a variety of alternative energy sources and conservation, with the big advantage that market forces would guide us to the most efficient options on the table. But I guess the ethanol subsidies have the advantage that Americans can pretend that somebody else is footing this bill.

http://www.econbrowser.com/archives/2007/02/ethanol_subsidi.html

However, an import tariff on oil would also tend to spur domestic oil production.

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oilmanbob on February 9, 2007 - 10:17pm Permalink | Subthread | Parent | Comments top

An import tax is my preferred solution too. The extreme volatility of oil and gas prices combined with the politicle hatred of the Majors and the foreign national oil companies makes it more difficult for independents to raise money,and makes the investors take a short-sighted view of investments in solar and wind.

I'd like to suggest that the tax be revenue nuetral, and that the proceeds be invested in renewable energy, mass transit, buying out the mid-eastern ownership of our national debt and subsidies for energy conservation measures like hybrid vehicles. We're importing 14 million barrels every day and thats a phenominal drain on our economy, as is the horrendous cost of resource wars. Every penny we pay in interest to the Saudies and Kuwaities is going to support monarchies that hate us.

And as long as I'm king of the United Siates, I'd mandate that all cars and light trucks sold in the US must be diesel
-electric hybrids with a plug in capacity, or straight electric cars and scooters. Instead of widening roads, how about mandating all cars need to be 18" narrower, and include a congestion tax with electric scooters, autos exempt in all cities. Make all people who can't prove a business use for their light trucks wear a bumper sticker saying "I drive this because I have a small penis"

of course shortly after the bumper sticker law I'd expect to be asasinated...

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mbnewtrain on February 9, 2007 - 11:28pm Permalink | Subthread | Parent | Comments top

I am in agreement 100% about an oil import tax. This would make those industrial and commercial users of oil share in paying for these costs associated with obtaining energy from foriegn countries. The less efficient transport modes, especially airlines and trucking firms, would object strongly. But, this import tax is the only politically acceptable way to promote the more efficient modes like rail and water. Perhaps a tax credit for the railroads to encourage them to install electrification for propulsion would be in order also.

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Valuethinker on February 10, 2007 - 9:56am Permalink | Subthread | Parent | Comments top

The problem with increasing US domestic oil production is:

oil is an *exhaustible* resource (as we all know ;-)

so there is no particular reason to want the US to exhaust its resources of oil *before* foreign countries.

Better in fact the other way, whilst countries like Saudi Arabia and Venezuela are willing to ship the US oil, the US should take it with open hands/ports/pipelines.

So better a tax on oil use generally, than one simply on imports.

All your import tax would be doing is handling a short term windfall to the holders of existing US oil reserves.

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tstreet on February 10, 2007 - 2:38pm Permalink | Subthread | Parent | Comments top

Not sure this tax can be revenue neutral if you are using the proceeds to fund things. The idea of revenue neutrality is to reduce other taxes to make up for the increased oil import taxes. You can't have it both ways.

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Valuethinker on February 10, 2007 - 9:54am Permalink | Subthread | Parent | Comments top

the trick is to specifically tie the tax to a benefit that the taxpayer can recognise.

In the case of a carbon tax, the trick is to rebate all of the revenues either by lowering social security contributions (both employer and employee), which are highly regressive, or by rebating the revenue as an annual dividend to each citizen (as they do with oil and gas revenues in Alaska).

Either way, citizens who spend less than the average on energy, benefit, regardless of their income level.

(this is less true in the SS case but:

- most citizens work
- most citizens pay SS
- SS is a regressive tax, that discourages employment and lowers wages (true of all payroll taxes) and therefore reducing it should increase employment and drive wages up

For those who do not work (eg the retired) to the extent that the CPI rises, their indexed benefits will also be increased. There may, however, be some groups that need specific compensation).

There is an economic loss associated with any tax (arising from the change in consumption of a commodity that it spurs) but if the income is directly rebated (as above):

- the distortion is minimised (because incomes haven't been changed much)

- in the case of the payroll tax, the problems with that tax are sufficiently large that a reduction in that will have its own positive benefits, which offset the cost of the commodity tax

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tstreet on February 10, 2007 - 2:36pm Permalink | Subthread | Parent | Comments top

An import tax on oil, with no equivalent taxes on any other fossil fuels, could be counterproductive. To the extent that this encouraged the use of ethanol, it will also increase the use of natural gas and coal, to wit, there are many ethanol plants in the works that plan to use coal to fire the plants. All fossil fuels needs to be taxed in accordance with their carbon content. Now, if ethanol is truly green and ethanol is truly green and has a really great EROEI, the proponents of said fuel have nothing to worry about, do they. He He.

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