Friday, November 17, 2006

Crude oil his a 17-month low 

Crude oil has hit a 17-month low. National security conservatives and anti-carbon greens should get together now -- before Americans readjust to inexpensive gasoline -- and push through a reasonable tax on carbon-based fuels in return for an extension of the most economically efficient aspects of the "Bush tax cuts." Blue state tax-and-spenders will want relief on the AMT, but the Republicans should hold out for a significant reform of the estate tax (I say boost the exemption to $25 million, which would have the added benefit of forcing virtually the entire estate-planning industry to redeploy into something productive). Alternative good ideas are available at the Official TigerHawk Tax Reform Proposal.

MORE (Sunday morning): Judging from the comments, this post will cost me more readers than Andrew Sullivan lost when he flipped on George W. Bush. Still, among the denunciations there are some points worthy of a response or elaboration.

No, I'm not in favor of higher taxes in the abstract, but if I have to have higher taxes -- and I believe they are inevitable in the next few years -- I would prefer that they burden consumption rather than innovation or production. Some of you seem to think that we can avoid tax increases, but that strikes me as fantasy. The Democrats control the Congress and the Bush cuts will expire with no action on their part. Some of you think that the Democrats will take the heat for that, but I don't think that the heat will hurt them with very many people who would have voted for them anyway. They will say, correctly, that the expiration was inherent in the tax code as it was enacted by Republicans, and the press will carry that story on the front page until everybody believes it.

Some readers have asserted that higher gasoline (or, as I proposed, carbon) taxes would not improve national security. Perhaps, but it would do two things right now. First, it would put less money in the pockets of regimes that are hostile to us. Second, it would accelerate the transition away from an oil-based economy. That transition is coming, whether you think in twenty years or fifty, and there are potentially great benefits to accomplishing it sooner rather than later. Among those benefits is that we will have a wider range of choice about those parts of the world that we need to care about. The sooner we can decide that the Arab Middle East has the geopolitical significance of the Congo, the better. That day will come, and we should do what we can to hasten it.

One commenter suggested that gasoline taxes "are used in Europe to ensure that only the relatively elite get to drive. I guess that's exactly what you're aiming for." He has obviously never been to Europe, or if he has been he closed his eyes while there. Ninty-two percent (92%) of American households own cars, 90% of Italian households own cars, 88% of Swedish households own cars, and 86% of French households own cars. Link(pdf). Obviously, Europeans drive fewer miles because they live in far more density so there are far more "destinations" within any given geographical radius. They also drive to those destinations in smaller cars, even though they themselves are not smaller than Americans, or at least not shorter.

Some readers suggested a high tariff on imported oil to promote domestic production. That strikes me as a short-term solution. Other readers propose that we couple the gas tax with consent to drill ANWR, offshore, and so forth. Good idea.

Why did I propose a tax on "carbon" instead of oil or gasoline? I side with those who think that coal power is not a good long-term solution because of its environmental impact. Yes, it will soften the blow as the price of oil trends up (as the result of increasing global demand and rising discovery and recovery costs), but it is very hard on the environment. Even if you do not accept that increased carbon in the atmosphere will lead to big climatic change, you also don't know that it won't. But there were reasons to dislike coal even before climate change became the latest cause for panic. It is destructive to mine, and it pours mercury into the atmosphere. You can't eat fish from otherwise perfectly clean Adirondack mountain lakes because of the mercury from Midwestern coal-fired power plants. I'm sure there are other consequences that we do not yet understand.

Another commenter said that taxing carbon would "shut down the economy." Not if we raised the tax gradually and gave people time to adjust. I do agree that we should accompany any such tax with measures that would speed the adjustment, including an expedited and federalized system for licensing nuclear power plants.

Some commenters have pointed out that a gas tax is regressive, and that we should trade it by repealing another regressive tax. That is fine with me. The "principled me" could support lowering the rate of the Social Security tax and raising the wage ceiling, even if the "self-interested" me would hate it.

Of course, if you believe (i) that federal taxes will not go up in the next six years or that we should tax production rather than consumption, (ii) there is sufficient petroleum in the world to meet rising demand at a relatively low clearing price for, say, the next 75 years, (iii) increased carbon in the atmosphere has no material adverse consequences, (iv) there is no difference between handing money to our government and the governments of Saudi Arabia, Iran, Libya, Russia, and Venezuela, and (v) rivalry over the supply of oil will not influence our foreign policy in ways that may cost us dearly, my proposed compromise is obviously asinine.


By Blogger honestpartisan, at Fri Nov 17, 05:36:00 PM:

As much as I like the estate tax, I like a carbon tax more. Good proposal.  

By Anonymous Anonymous, at Fri Nov 17, 09:31:00 PM:

I guess Warner kicking Inhofe to the curb can only help make this a reality. Maybe it's just semantics but can't we call a gas tax a gas tax. "Carbon tax" sounds like it would be pretty easy to repeal. I mean, nothing else on the periodic table has its own tax, and it might occur to people that there might be a good reason for that.  

By Anonymous Anonymous, at Fri Nov 17, 09:45:00 PM:

Are you on drugs??? Taxes always work so well.  

By Anonymous Anonymous, at Fri Nov 17, 09:48:00 PM:

(1) A carbon tax doesn't help national security.
(2) Helping anti-carbon greens hurts national security.

If you want a friend, buy a dog.  

By Blogger TigerHawk, at Fri Nov 17, 09:51:00 PM:

Much as I would prefer not to send money to the federal government, I'd rather that the Feds get it than the House of Saud. That's the choice, and if you can make a big chunk of the Bush cuts permanent in the deal it is a good one.  

By Anonymous Anonymous, at Fri Nov 17, 09:52:00 PM:

Carbon Tax? Might as well call it a shut down the economy so I can hug myself and feel good tax. A stupid, stupid idea.


By Anonymous Anonymous, at Fri Nov 17, 10:08:00 PM:

Instead of a carbon tax, how about a variable tax on imported oil that keeps the price of oil entering the country at, say, $70/bbl - i.e., if the oil is $62/bbl, the tax is $8/bbl; if the oil is $20/bbl, the tax is $50/bbl. It would dramatically increase production activity here, keep domestic oil at a price level that would justify development of shale and tar sands, and probably cause a near collapse in the price of the oil sold by terror financiers. I'd recommend using the tax for debt reduction exclusively, since revenue might fluctuate a lot. Alternatively, we could divide the revenue up and send a check to every citizen in an effort to offset regression.  

By Anonymous Anonymous, at Fri Nov 17, 11:01:00 PM:

Taxing gas does not stop money going to the house of Saud.  

By Blogger M. Simon, at Fri Nov 17, 11:05:00 PM:

The price of electricity goes up.

The cost of delivery goes up.

The cost of heating your house in winter goes up.

And the benefit is?  

By Anonymous Anonymous, at Fri Nov 17, 11:29:00 PM:

You can't increase a regressive tax (gas) and decrease a progressive tax (estate). Not gonna happen.

I agree that a gas tax should be implemented, and that it should be made relatively revenue-neutral by cutting a different tax. But you've got to pick a similarly regressive tax to cut. Which mean, basically, you've got to cut the SS/Medicare tax.  

By Anonymous Anonymous, at Fri Nov 17, 11:31:00 PM:

Higher prices on petroleum products leads to less consumption. Our economy has proven it can grow decently well at $60-$70 a barrel. If part of that $60-70 goes to the gov't instead of Saud, Saud is getting less. And that is a damn good thing.  

By Anonymous Anonymous, at Fri Nov 17, 11:43:00 PM:

Die painfully, please.  

By Blogger Dawnfire82, at Fri Nov 17, 11:52:00 PM:

And when the market price rises to $60-$70 and with the tax it's $70-$80 (or whatever) we're still paying more and the Saudis are still getting paid. Gasoline is inelastic in our society. It isn't a luxury, it's a necessity.

Raising taxes on your populace to punish a foreign power is... well, assinine. There's a reason that god invented tariffs.

I remember you, TH, talking about how your prediction that rising prices wouldn't affect American life much, just make us bitch more. And that was correct. I fail to see how this would be all that different. It's just going to cost us more individually and feed the annual spending party in Congress.  

By Anonymous Anonymous, at Fri Nov 17, 11:53:00 PM:

It's only the choice because you want to make it the choice.

However, it was nice of you to fold on the bogus security argument.  

By Blogger D.E. Cloutier, at Sat Nov 18, 12:26:00 AM:

About 50 percent of America's petroleum imports are from countries in the Western Hemisphere, with 17 percent from the Persian Gulf, and 19 percent from Africa and 14 percent from other regions.

The top ten countries that the U.S. imports oil from: 1. Canada. 2. Mexico. 3. Saudi Arabia. 4. Venezuela. 5. Nigeria. 6. Angola. 7. Iraq. 8. Algeria. 9. United Kingdom. 10. Brazil.

Mexico is second biggest foreign oil supplier to the U.S. By all means, do everything possible to lower Mexico's oil income. Maybe you can get more Mexicans to move their families to the U.S.

Meanwhile, here are Saudi Arabia's major oil customers: United States (1.6 million bbl/d); OECD Europe (1.5 million bbl/d); Japan (1.3 million bbl/d); South Korea (844,000 bbl/d); India (around 350,000-400,000 bbl/d); China (over 200,000-300,000 bbl/d); Taiwan (over 200,000 bbl/d).

Source of statistics: U.S. Energy Dept.  

By Blogger Lanky_Bastard, at Sat Nov 18, 12:50:00 AM:

Wow, people are coming out of the woodwork to decry this. Maybe taxing the entire nation to let the wealthy inherit more money isn't popular.

That having been said, I'd be ok with a tariff on gas used to subsidize cleaner energy.  

By Blogger El-Visitador, at Sat Nov 18, 01:25:00 AM:

We already pay about $1 in taxes for each gallon.

Your idea is to increase this tax.

In the end, you'll end up with the extra fuel tax, with the estate tax, and with the AMT.

Haven't you learned? The government's share of your income always goes up, never down, despite "deals" such as you propose.  

By Blogger happyfeet, at Sat Nov 18, 01:27:00 AM:

You got the tradeoff wrong. If the Dems just have to raise taxes by letting the cuts expire, they should have to own that. The tradeoff for a gas tax should be opening ANWR, opening coastal drilling in some compromisey way, and streamlined licensing for nuclear plants.

Why not go for a grand compromise and throw in increased CAFE standards for liberalization of ethanol trade?  

By Blogger Red A, at Sat Nov 18, 01:55:00 AM:

Instead of a carbon tax, how about a variable tax on imported oil that keeps the price of oil entering the country at, say, $70/bbl - i.e., if the oil is $62/bbl, the tax is $8/bbl; if the oil is $20/bbl, the tax is $50/bbl. It would dramatically increase production activity here, keep domestic oil at a price level that would justify development of shale and tar sands, and probably cause a near collapse in the price of the oil sold by terror financiers. I'd recommend using the tax for debt reduction exclusively, since revenue might fluctuate a lot. Alternatively, we could divide the revenue up and send a check to every citizen in an effort to offset regression.


By Blogger happyfeet, at Sat Nov 18, 02:04:00 AM:

Red - no way could it ever be dedicated to debt reduction - just trust me om that cause there are lots of reason why. But it would also seem like you're saying - hey China - you guys can have $20 a barrel oil, and we'll let our guys pay $70. Not seeing how that flies.  

By Blogger sirpatrick, at Sat Nov 18, 05:55:00 AM:

There are ALREADY taxes on fuel at the pump(.24 federal per gallon plus another .15-.26 of State taxes)

I don't follow your logic: Tax us more and then we will let you keep your income tax reduction...

Ponderous man, ponderous...  

By Blogger Jeff Medcalf, at Sat Nov 18, 08:28:00 AM:

OK, here's what I don't get.

If we continue to consume gas at the present rates, oil reserves worldwide will be drawn down to the point that the supply will be forced to drop, because production cannot keep up with demand. (There is some question about when or if that would actually happen, but let's just assume it's true.) The decreased supply relative to demand will result in much higher energy prices, leading to economic disruption. Your proposal to prevent this is to artificially create this situation by enforcing much higher prices and economic disruption now? What am I missing here?  

By Blogger TigerHawk, at Sat Nov 18, 08:41:00 AM:


There is nothing inherently bad about a transition away from a petroleum-based economoy. If it is sufficiently gradual, that transition will generate a huge amount of new wealth. The trick is to avoid volatility, and I think a sensible tax strategy is a virtually essential ingredient of a broader program to manage that volatility.  

By Anonymous Anonymous, at Sat Nov 18, 09:28:00 AM:

Using tax increases of any form to fix government budget / deficit problems is a futile, counterproductive, economically damaging idea. Every time government revenues go up, either by increased taxes or expanding economic activity, the politicians spend all of the additional revenue and then spend some more making the budget situation worse.

Until the politicians are willing to reform spending on entitlement programs and show other forms of spending restraint, tax increases of any form are harmful and provide no long term benefit.  

By Anonymous Anonymous, at Sat Nov 18, 09:35:00 AM:

Taxes are a way to
1) raise revenue for the government
2) shape behavior

Shape Behavior:
1) Tax deduction on home-load interest to encourage home-ownership
2) I have two little deductions running around the house right now. 'Nuff said.

The devil is in the details. If a carbon tax is written in such a way to guide revenue into constructive alternatives to using carbon fuels (battery research, hydrogen power,etc.) then there is some sense in proposing it.
Otherwise, it would just be an onerous burden on the economy.

Oil is a fungible, worldwide commodity. Just because we don't import MOST of the oil we need from the KSA, doesn't mean that they (and Iran) don't reap benefits from the present high world price, based on WORLDWIDE demand.
I don't have the link at hand, but I read something recently where Zawahiri said that the oil wealth of the KSA was a divine gift to be used to finance the world-wide spread of Islam (uh, that's called Jihad). Make of that what you will.

Lastly, I'm two-score and ten, and I doubt whether I'll ever see more than one or two nuke plants built in this country in the rest of my lifetime. Nuclear fission plants are one of the big ways out of our current conundrum, but it ain't gonna happen. The Luddite faction out there will guarantee that.


By Anonymous Anonymous, at Sat Nov 18, 09:55:00 AM:

The fundamental mitigating factor against this thesis is that collecting new taxes of any kind supposes that lawmakers will be responsible with the money and solve the problem......by now everyone knows that government isn't (part of) the solution, it is THE PROBLEM  

By Blogger Brentbo, at Sat Nov 18, 09:58:00 AM:

Our grandparents made all kinds of sacrifices during WWII, including gasoline rationing. They deserved to win....  

By Anonymous Anonymous, at Sat Nov 18, 11:24:00 AM:

Carbon tax?? - does that include us humans too? What about pets and wildlife - they are C02 producing as well :-)

I also want green energy and your plan has merit to it in a theoretical/political sort of way, but I'm not sure it will play out as neatly as you have planned. Someone above commented, "Taxing gas does not stop money going to the house of Saud." The more the price of making energy goes up here, the cheaper it gets to buy it elsewhere. They've got plenty of it so they can drop the price easily. Not saying that will happen, just making the point of unintended consequences - many unforseeable.

The bottom line is the Democrats are as corrupt - if not more so than the Republicans. Welcome to reality everyone. They don't care about green energy - they only care about power. And they get their princely power from taxing us. IMHO, we'd all be better off focusing our energies on demanding our representatives represent us and getting rid of the corrupt members on both sides of the isle. Then the other issues of national security, environment, etc should more easily take care of themselves.  

By Anonymous Anonymous, at Sat Nov 18, 11:31:00 AM:

oops... I said, price of "making energy". I should have said, the more "fuel costs". I'm going to spare the bandwith to correct the flaw - I think my overall point is still clear. Work with me :-)  

By Anonymous Anonymous, at Sat Nov 18, 11:48:00 AM:

Gasoline consumption is elastic, not inelastic. Maybe some of you are too young to remember how the typical automobile changed from the early 70s (low gas prices, poor mileage) to the late 70s/80s (high gas prices, better mileage) to the 90s- (low gas prices, poor mileage).

As to why we would want to "hurt" ourselves by raising gas prices and having smaller cars - 9/11 is 3000 reasons why. If the U.S. govt taxes gas more and wastes the results on pork and silly social programs (which I do not dispute), forcing the U.S. to transition off of petroleum faster, that means the Islamofascists don't have that money and are that much less able to do a repeat of 9/11.

Eventually we will transition off petroleum - it is a finite resource. The only question is when. Sooner is better because it means a shorter window in which the terrorists are well funded by our own dollars.  

By Anonymous Anonymous, at Sat Nov 18, 12:11:00 PM:

I'm not too young to remember. I remember in 1977 waiting to buy a car because I thought they'd be able to increase fuel mileage -no matter what size the car. I'm still waiting.

I'm under 50, but I guess I've been around the block enough to realize that raising taxes rarely achieves it's desired goals. From "improving education" to "welfare" increase taxes rarely seems to do anything except suck the money from our pockets and put it into a big pot of money that Trent Lott and Harry Reid and all of the other politicians use to give favors to their contributors to get themselves reelectecd.

Again - I think there is a valid logic to the idea presented here - choosing WHAT taxes you want increased in this current democratic environment. But if you think the current corrupt set is going to use that increased money for anything other than pork and earmarks - well...heh..maybe I'm just older than you.

I agree that we need government help to get innovations started - but I'd put my money on demanding the representatives do it, rather than letting them trick us, once again, that if we just throw more money at them, the problem will be solved.  

By Anonymous Anonymous, at Sat Nov 18, 12:27:00 PM:

Anonymous above said: If the U.S. govt taxes gas more and wastes the results on pork and silly social programs (which I do not dispute), forcing the U.S. to transition off of petroleum faster.,

Then what is the point? That we drive smaller cars and make the oil we do have last longer?  

By Anonymous Anonymous, at Sat Nov 18, 12:47:00 PM:

> First, it would put less money in the pockets of regimes that are hostile to us.

That's a relevant factor only if the proposal affects the amount that they can spend on said hostilities.

It doesn't. The amount of money that the Saudis, Iranians, etc are spending to support terrorism is a rounding error in their revenues.

If you're insist on gestures that can't help, please pick one that doesn't hurt.  

By Anonymous Anonymous, at Sat Nov 18, 12:51:00 PM:

I just commented on the innumeracy inherent in this proposal. We can find similar problems in the discussion of alternatives.

Yes, past coal-fired plants did spew mercury. However, current ones don't, and we're not going to use past ones.  

By Blogger Tom Grey, at Sat Nov 18, 02:03:00 PM:

Yes on carbon tax, yes on gas tax.
Taxes change people's behavior -- only behavior that is undesirable should be taxed.

You should be calling Al Gore, and most "global warming" / climate change doomsayers, an intellectual coward for not proposing some (Gary Hart like) $0.50 tax on gas. But yes, it should come on line slowly.

In fact, though, it should be such a tax as to make the gas pump cost equivalent to an effective $60 / barrel, to be slowly increased; perhaps $1 / yr until some year's imports are less than the average of 3 prior years.

No need to make it revenue neutral -- it can "reduce the deficit".  

By Anonymous Anonymous, at Sat Nov 18, 02:31:00 PM:

"Some readers suggested a high tariff on imported oil to promote domestic production. That strikes me as a short-term solution"

I proposed the variable import tax, and I have to disagree with you on this one. We can squabble about ANWR and the Santa Barbara channel, but we have enough shale to last a very, very long time - at current GROWTH rates. It's just a lot more expensive to produce than the stuff that seeps out of the ground in the ME for next to nothing. We're not running out of oil; we're running out of cheap oil with no contaminants in it. And producing the expensive stuff isn't going to happen just because the price is high for now - I know a number of people in that industry or who follow it for the financial industry, every one of whom seems to assume the price of oil will eventually collapse. That mindset will prevent domestic production of difficult supplies, keep us focused on "green" fantasy solutions, and keep the billions flowing to our enemies.

There's no question that higher oil prices create considerable economic drag, so I'll revise my original idea to say let's just do what Alaska does: divide the revenue by the number of adults in this country and send everybody a check - that would have to offset the economic drag somewhat.  

By Anonymous Anonymous, at Sat Nov 18, 03:13:00 PM:

How about a tax on HOT AIR that means AL GORE would have to pay a tax every time he opened his mouth  

By Anonymous Anonymous, at Sun Nov 19, 01:52:00 AM:

Some of you seem to think that we can avoid tax increases, but that strikes me as fantasy.

This line strikes me as surrender to the Left and their "tax ratchet".

Cut government spending, dammit. We can't keep punting that question down the road. Sooner or later someone's going to have to have the stones to stand up and face all the altruists with their hands out, and say "no".  

By Anonymous Anonymous, at Sun Nov 19, 11:17:00 AM:

INCREASE TAXES! That is the call of the lazy person not wishing to think through a difficult problem and give it a simple solution. It is nothing more than a panacea to make the bad man go away. It has never and it will never solve a problem. The politicians like the mantra because it allows them to pretend they are doing something while doing nothing and benefit from the money that comes their way.

Tigerhawk is a great blogger; a brilliant guy. I'm at a loss as to why he would try to wave this one away with the useless mantra of "raise taxes". IMHO, it is an act of doing nothing.  

By Anonymous Anonymous, at Sun Nov 19, 12:17:00 PM:

I think that TH was trying to propose that a carbon tax, in trade-offs with other taxes, would help to shape beahvior and economic policy in a different way.

Where do we want to be in 25 years?
Still dependent on oil from foreigners, a huge trade deficit, etc.?

Or a good measure of "energy independence" and a much smaller trade deficit?

I don't know how we get there from here, but a carbon tax MAY be a means of shaping consumption behavior and production sources (investing dollars in the US for Nuke plants, electric battery powered cars and synthetic fuel and hydrogen production).
The future is coming, whether we like it or not.


By Blogger William, at Sun Nov 19, 11:32:00 PM:

I'm a first time reader, and I really like what I see. It seems you share my thoughts exactly on gas taxes. I kid not, exactly. You have seized the shortest route to my intellectual heart.

Anyway, I have a specific proposal I hope you would like. I believe it would achieve all the aims of a gas tax while softening spikes, making gasoline prices predictable, and not giving the government ridiculous amounts of money.

Call it the William Carbon Tax.

First, you decide (or more likely some skilled economist decides) the maximum rate at which the price of carbon fuels can rise to curb consumption without significantly impacting the economy.

Second, you define carbon-based fuels as all transportation fuels deriving more than 5% (can be a little more or less) of their energy from carbon fuels such as natural gas, coal, and oil. This ensures the taxation of second hand carbon fuels, such as coal-hydrogen, while allowing fuels like ethanol, which requires natural gas based fertilizers, some wiggle room.

Third, you take that rate of price increase, you pick a base price, and then you get target prices that will change every quarter, half year, or year (again depends on what the economist says). So, for example, you would say the price of carbon-fuels will be 3$ in 2008 and increase 10 cents every quarter thereafter.

Fourth, you achieve this target rate by, each month, taking the lowest retail price of carbon fuel and adding however much tax is necessary to raise it to the target price. Thus, with slight variations to ensure the market continues to take its course, the price of carbon-fuels will remain at the target price. This allows consumers in the market to plan fuel expenses years into the future, assisting them with decisions such as the purchase of a hybrid, and producers to do the same, allowing, for instance, ethanol producers to invest big without the fear of a sudden plunge in carbon fuel prices.

Fifth, you take all the revenue from the tax, which, because of it changes monthly, will be incredibly unpredictable, and you give it back. You simply take all the money, divide the revenue by the number of taxpayers, and mail each American a check. Because everyone gets the same check regardless of their fuel consumption, big consumers will be losing, and people who do not consume carbon fuels will be getting free money. Regardless, the American government will get nothing, the desired punitory effect of a gas tax will be achieved, and the money will remain in the private sector.

Fighting oil consumption is a subject of great interest of me, and this plan has come from many modifications. Please do tell me if you approve and/or have any more to make.  

By Anonymous Anonymous, at Mon Nov 20, 12:30:00 PM:

> No need to make it revenue neutral -- it can "reduce the deficit".

Except that it won't.

Govt spends what it takes in, plus a bit. Giving it more money just means that it will spend more.

Disagree? Feel free to cut spending from current levels. Then we'll talk about whether we should reduce the deficit even more by raising more revenues.  

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