Why not tax oil imports?

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Clinton and McCain have proposed temporary gas tax relief for this summer. Obama is talking about a windfall tax on oil profits, which seems appropriate given Exxon's record profits this year. Somehow through all of this the candidates are saying these plans will 1) give some financial relief to driving Americans 2) reduce our dependence on foreign oil and 3) reduce our oil consumption.

How, exactly?

I fail to see how reducing the gas tax would accomplish any of these three goals. The market is clearly able to withstand $3.75/gal+ gas prices, as is demonstrated by only a 1.1% decline in gasoline consumption this last year. Until consumption drops another 1-2% I doubt demand will have any influence on price. A federal tax cut of $0.18/gal would likely go into the pockets of gasoline distributors, not consumers. Even if the savings were passed on to consumers, the benefits to the individual would be negligible, and would only further increase demand. Failure on goals 1 & 3. No progress on 2.

I completely fail to see how a windfall tax on oil profits would help anyone. The pocket-lining standards have been set at the oil companies this year, and they probably won't want to give that up, so they'll just end up passing the new expenses onto the consumer and their exploration budgets. They'll cut exploration which will dry up supply even more, bringing oil prices up yet again and, if we can stand $4.50/gal gas (which I believe we could) then they'll be right back to their Spring-2008 profit levels again.

I can think of a simple way we could accomplish all three goals: nationalize the oil companies. We have nationalized electricity generating facilities, why not oil?

Short of nationalizing oil companies, I can't see a quick solution for goal #1: providing financial relief for American drivers. The bar has been set with $3.75/gal gas. If we didn't want to pay that much for gas we shouldn't have bought it. Now that we have, it's too late, the hook has been set.

A long-term play for fixing #1 would be to substantially increase the value of the US Dollar relative to the OPEC member countries' currencies. However this isn't something the government has much control over anyways, and would only increase oil demand and consumption in the long run.

The simple solution for #3 is to throw #1 out of the window. If you want people to use less gas, make gas more expensive. When I think about what price gas would need to be before I would seriously consider not driving as much, it's probably in the $5-6/gal range. If gas were $6/gal today I would likely ride my bike everywhere, even in bad weather. But it's not, I live 7 miles from work, and the temp has been around 40 degrees in the morning lately.

I was thinking this evening about reducing our dependence on foreign oil while simultaneously reducing our oil consumption, and I started to wonder: what about an oil import tax? A google search for oil import tax returns surprisingly few results, the only relevant hit being an article about a 1987 Harvard study proposing a $5/barrel tax. Most other articles are from the 80's. So are we doing this currently, or was this an idea that was long since abandoned?

Hydrogen fuel cells generated from nuclear reactor power. Send nuclear waste up space elevator and rocket at sun. Problem solved. :-)

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The idea to tax energy is pretty old, and was in the German Green Party's election platform around 1980 or so. Phrase-google for "Ecological Tax Reform" to get more precise results. One word of caution: Simply taxing imports would lead to enormous windfall profits for those who still own an oil field in Texas or Alaska. Here another reflection: Somebody has calculated that an increase of 10 US$/barrel means a yearly 500 Billion US$ transfer into the pockets of Putin, Chavez and Ahmadinejad. At 130 US$/barrel, and costs of less than 30, that means at least 5 Trillion US$ per year. Good news for weapon manufacturers looking for new clients, bad news for the security of Western civilisation. You could keep that risk under control by taxing energy in OECD states and China (which would push the World market price down), and by using part of the revenue for an aggressive technological programme aimed at substituting oil with renewables and energy-saving technologies. The latter includes low-tech such as house insulation.

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This page contains a single entry by Robert W. Rose published on May 6, 2008 10:26 PM.

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