Here's Why We Need a Tax on Oil Imports

I love this piece by Friedman who is proposing a $1 dollar Freedom Tax on oil. One of the biggest reasons for me to start this blog was to talk about energy and ideas like taxing all oil imports. I love Friedman's proposal but I'd rather just have an even stiffer tax on all oil imports at something like $30 dollars a barrel. We could offer rebates to the old and the poor, and use the money to fund transportation, the auto bailout, health care or just to pay down our own debt.

Why is a tax on oil imports preferable to a tax at the pump? US producers are the highest marginal cost producers and a tax at the pump actually discourages domestic exploration. A tax like this on oil, one way or the other, will get us off oil imports within about 20 years as new technologies in hybrids are rolled out. It's the single most important thing we could do to improve our nation's competitiveness.

Some might argue that the tax on oil would hurt consumers despite rebates for the poor. One way or the other, the price of oil is going to go up over time regardless. The US still consumes about 25% of all world oil production--would you rather the US government get that increase in price as tax revenue, or have that revenue go to dictators that want to kill us?

It's not anti trade either since oil production is governed by a cartel. People forget that just back during World War II, the largest oil exporter was none other than the US. Being a net exporter of this commodity gave us independence and allowed us to control our own economic destiny--a trait this country has lost.

If we did not have to import our own oil, we would have almost no trade deficit and wouldn't have to borrow from China or anyone else. It's an energy strategy issue, a national security issue, and the President's reluctance to propose this as the underpinning of a national energy policy is perplexing. Worried you won't get the votes? Offer the GOP more drilling rights to get their votes. It would mean a much more competitive and independent country.

Via NY Times:

"People do not change when you tell them they should; they change when they tell themselves they must,” observed Michael Mandelbaum, the Johns Hopkins University foreign policy specialist. And nothing would tell Iran’s leaders that they must change more than collapsing oil prices.

Mr. Obama has already started some excellent energy-saving initiatives. But we need more. Imposing an immediate “Freedom Tax” of $1 a gallon on gasoline — with rebates to the poor and elderly — would be a triple positive: It would stimulate more investment in renewable energy now; it would stimulate more consumer demand for the energy-efficient vehicles that the reborn General Motors and Chrysler are supposed to make; and, it would reduce our oil imports in a way that would surely affect the global price and weaken every petro-dictator.

Comments

[john s. gordon:]

restraint of trade such as you are proposing certainly would generate squawks from the international trade organizations.
> jack

Jun 25 08:13 AM

[chap08:]

Hey, great idea! Have you discussed it with Reed Smoot and Willis Hawley?

Jun 25 08:19 AM

[TCK:]

Lost in the debate is the fact that gasoline use only accounts for half of all oil usage. The balance is produces energy which drives industrial production.

Such a tax would have devastating ripple effects on all levels on the economy. Costs would be passed on to consumers not just at the pump, but in consumer staples, food costs and all levels of basic consumption.

However, the gas tax issue will likely come to pass. This will be the government's way of helping you to make the "correct" decision in buying a new "tinker toy" car produce by Obama Motors.

Jun 25 08:26 AM

[dick streich:]

I can't think of one valid reason to tax imported oil. In time the price of gasoline will rise to a point where many people can't afford it
Our population stands at over 300 million and there are roughly 270 million cars & trucks. So all you have to do is wait till all the babies that have been born in the past 20 years to get a drivers license and a car. Imagine how much gas another 10 - 20 million cars will burn.

Jun 25 08:28 AM

[Shale Gas:]

What the U.S. needs to do is shift our dependence on oil (gasoline) as a transport fuel to natural gas. The technology exists for natural gas powered vehicles and all that needs to be done is build the cars and build the infrastructure to support the vehicles. This will take a generation and billions but we should start now.

Jun 25 08:35 AM

[fireball:]

ng offers some relief. going after our own oil offers more relief.
you mean the incentives to make the innefficient, and expensive more competitive at our expense. it will always fall on consumers and/or taxpayers. the price of oil has been a much needed relief to avoid complete disaster. artificially raising the price is a poor statist mentality idea. we have enough to contend with on oil prices.
as cameron points out the canadians and mexicans are not our enemies. venezuela or at least the petty tyrant is. it is one of the few places outside our borders that i would applaude u.s. intervention. only because jimmy carter helped install this curse on that country and those people.
i understnd your sentiment but it is just the statist line. how about innovation. i happen to believe that the private sector in pursuit of profit is much more likely to come up with alternatives that work efficiently while actually saving money. i do not believe i need to say much about the waste and inefficiencies of govt on every task they set their hand to. even the legitamate tasks such as the interstates and space program are riddled with expensive ridiculous expense.
on funding healthcare, i find nothing in the constitution that says anyone has the right to "free" healthcare. instead everyone has the right to pursue the best they can afford. the high costs were brought on by government intervention (inefficiencies and red tape waste) and the cost of malpractice insurance. government run health care is another disaster waiting to happen. competitive care is what controls price and encourages quality.
subsidies and tax breaks to favor inefficient technology only cost us more. this is the opposite direction this country needs to go.

Jun 25 09:16 AM

[Trane250:]

There are a very large number of people and businesses that heat their homes and buildings with fuel oil. Even now, many millions can't afford the high cost and require government subsidies. You also haven't included freight transportation, which is almost entirely dependent on diesel fuel. Taxing crude oil will result in higher transportation costs that businesses will pass on in the form of higher prices, which in turn will cause a spike in inflation. Also your statement that "if we did not have to import our own oil, we would have almost no trade deficit" is completely false. The trade deficit in manufactured goods during the Bush years was $3.4 trillion.

Jun 25 09:19 AM

[Glen L.:]

This is perhaps the dumbest damn thing I've ever read on SA. Kudos to the commenters for pointing out at least a bit of the shortsightedness of BlindReason.

As we spiral down towards Great Depression II, it's just amazing how many kooks are coming out of the woodwork with cockamamie tax-and-spend schemes that will do nothing but ratchet up the federal, state, and personal debt. It's like they're trying to save the Titanic by sailing it into a three or four more icebergs. Meanwhile, the cheers of the bailed-out fat cats in the lifeboats are drowning out the screams of the little people in the water who are, well, drowning. This movie will not end well.

Jun 25 09:41 AM

[Ferdinand E...:]

A freedom tax. Was that concept proposed by the person who first used the expression 'freedom fries'?

Jun 25 10:48 AM

[Jimbo:]

By all means, let's move to natural gas as a transportation fuel. It's cheap and we apparently have an abundance. The enviro-nazis should be happy because it is about 50% lower in carbon emissions. I thought about an import tax on oil some years ago, but it is true that this would hurt Canada and Mexico primarily. Since oil is fungible, it would be very difficult to segregate specific oil shipments from different countries.

Jun 25 11:12 AM

[ValueInvestor:]

Do you realize that the F in NAFTA means FREE. Seeing how the majority of imports come from Canada and Mexico any tax like you suggest would be disputed at the WTO in a matter of minutes.

Your name Blind Reason seems appropriate given the subject of this article.

Jun 25 11:32 AM

[John Bowman:]

The New Jersey Department of Transportation owns CNG powered cars and trucks. Unfortunately, they only have a few charging stations. No operator is required at the charging stations. The driver can fill the onboard tanks of the vehicle.

I played a part in the acquisition of the station and the vehicles.

Natural gas is in abundance in the U.S., especially with the discoveries in northern Pennsylvania.

CNG is clean burning, but one of the downsides is the amount of energy compared to gasoline.

Jun 25 11:32 AM

[John Bowman:]

It's amazing how many younger people believe that adding taxes to a dilemma can solve it. Well, I should add politicians to that mix.

They rarely envision the drastic side effects from the higher tax burden. Simplistic thinking at it's best.

Jun 25 11:38 AM

[a. palmer jr.:]

The best thing to do is leave things alone...No taxes, no new regulations, the energy problem will take care of itself through competition and free enterprise.

Jun 25 11:59 AM

[galewhitaker:]

This is a great idea! For all you detractors it’s critical that we move away from oil altogether. All the world’s major oil fields are in decline and the oil industry is not going to be able to maintain the current production rate (85 mbpd) much longer. New oil demand by china and India are going to guarantee that demand outstrips production in the not too distant future. This will cause shortages, recession and political chaos. I know I am pissing in the wind but I can’t resist blogging about our real situation. Conservatives just cannot fathom the idea that god hasn’t provided enough oil in the bowels of the earth to last forever. Let’s wake up guys, even a child can see that if you keep sucking the oil out of the earth it will eventually disappear.

Jun 25 12:12 PM

[Erich J Knight:]

the NOX & SOX success story raises the prospects for Cap & Trade and would mean,(with the EU lessons learned) for the cap & trade in carbon. I thought the relatively painless process for both industry and consumer in clearing the air and acid rain would offer the best carbon solution.

Dr. James Hansen has turned me around with his Tax & Dividend paper. The simplicity of calling carbon by it's name, at it's source, reduces the overall complexity, for the public most of all. A system to deal with CO2 equivalence of other GHGs will be complex enough by it's nature of not having a chock point source.

Putting the money directly into the wallets of all consumers will stimulate entrepreneurial alternative energy efforts, and for those who wish to continue filling the SUV, or not hitting the light switch, they can just waste their dividend check.
I , sitting in a super-insulated home, with solar hot water and an electric bike will be banking mine.

Politically, C tax & dividend (I prefer the name Tax&Share) may be to late to the stage this year to have a legislative chance, but I am changing my arguments for it, and will spread Dr. Hansen's.

Here is a post concerning modification of where the dividend should go, by Folke Günther, a chemical engineer in Sweden:
Date: Wed, Jun 3, 2009 at 9:50 AM
Subject: Re: [biochar-climatechange] Emailing: 20080604_TaxAndDividen...

I agree with Jim's proposal on a global carbon tax .
However, I don't think the tax should be paid back to everybody, indiscriminately.

Instead, the tax collected to restrain emissions should be paid to those who sequester carbon from the air.
By that the counteracting measure could be very profitable
(In Sweden, the emission tax is 1 SEK per kg CO2, or 3.77 SEK (about $ 0.5) per kg carbon.)

If the same amount would be paid to those who bury char in their own land , a normal farmer, making char of the haulm could get an extra pyment of about $ 1000 per hectare! (assuming a harvest of 8 tonnes per hectare)
Many would join in. Here we are in a potential situation similar to that depicted by the anti-biochaists.
The solution to that is to restrict the payment to those following certain rules of an 'etical' charring.
I mentioned that in my paper 'Carbon sequestration for everybody< www.holon.se/folke/car...
>' about Mrs Ruth Less.

Jun 25 12:52 PM

[InnocentsAb...:]

Almost any means of increasing the cost of carbon emissions could be construed as restraint of trade. Doing it on a Federal level is the only alternative to doing it on a global level -- (and with an accompanying global government - which isn't going to happen}.


On Jun 25 08:13 AM john s. gordon wrote:

> restraint of trade such as you are proposing certainly would generate
> squawks from the international trade organizations.

Jun 25 02:24 PM

[Nathaniel C:]

Instead of taxing oil imports, lets tax Goldman Sachs. They only pay 1% in taxes.

Jun 25 09:36 PM

[satchv2:]

The USA used to have a certificate requirement for importing crude. It only allowed the normally corrupt politicians to make friends/money by giving them to their friends.

Maybe we should tax all imports at 100% then we could self destruct.

When we have a congress capable of making reasonable and just laws maybe then we can discuss taxing oil. Green is good but not the solution for all our energy problems.

Jun 25 11:49 PM

[SubsidyEye:]

Here we go again: yet another brilliant idea by somebody who pontificates on trade policy but appears to know nothing about the international rules on trade.

Raising the tariff on petroleum imports is not a new idea, and pops up every time there is a dramatic fall in the price of crude oil. See, for instance, this article from the New York Times of 18 November 1986:

query.nytimes.com/gst/...

There is the little problem of the tariffs on petroleum products that the United States has committed itself to not exceeding -- i.e., that it has "bound" at the World Trade Organization. The U.S. tariff on crude oil is currently 10.5 cents per barrel (or 0.25 cents per gallon) and has NOT been bound.

However, the tariffs on refined fuels HAVE BEEN bound. That for "Light oil motor fuel from petroleum oils and bituminous minerals (o/than crude) or preps." (HTS 27101115), for example, is 52.5 cents per barrel (or 1.25 cents per gallon).

dataweb.usitc.gov/scri...

When a country has bound its tariff at the WTO, it commits to not raising the tariff without compensating WTO-Member exporters who are adversely affected, which would include Canada, Mexico and Norway. That would be a very, very expensive step.

That means that, in theory, the USA could raise its import tariff on crude to whatever level it wants to. But if it were to raise the tariff above 52.5 cents per barrel -- the tariff applied to petroleum products -- all that would do is encourage imports of refined products instead of crude, thus further undermining U.S. refiners. It would also, of course, create windfall profits for domestic producers of crude petroleum.

By contrast, the government would be perfectly within its WTO rights and obligations to apply a "freedom tax", or carbon tax, or for whatever reason it chooses raise the excise taxes, on all motor fuels. But, of course, that would not make the domestic oil industry (or motorists) very happy.

So, instead, policy makers try to dupe the public into thinking that they have a cheap, home-grown solution right around the corner: biofuels.

Jun 26 01:33 AM