Skip to content
Link copied to clipboard

One Last Thing | America's oil obsession may need a gas tax

There is at least one subject about which the last seven years has produced considerable consensus: America's dependence on oil is less than good and perhaps quite bad.

There is at least one subject about which the last seven years has produced considerable consensus: America's dependence on oil is less than good and perhaps quite bad.

And maybe a tax is the way to make it less bad.

I know: taxes, arrrggh.

The oil-America complex, however, has reached such a perilous, almost (but not quite) irretrievable state that a tax (of a particular kind) on oil may be needed.

No matter where you are on the political spectrum, there's reason to be worried by our oil dependency: Liberals don't like the environmental effects and conservatives don't like being held over The Pit of Recession by the OPEC cartel. Of course, that much was true eight years ago. But it is now clear to everyone in the middle that oil dependence has national-security implications, too.

On the most general level, oil is the reason America


care about the Middle East. If we didn't need oil, then America could treat the Middle East with the same sort of neglect we do Africa. (Not to say such neglect would be morally justifiable, only that it would be logistically feasible. Our neglect of Darfur and Rwanda, while reprehensible, hasn't caused


any tangible harm.)

Instead, we are invested in a troublesome, hostile region and worse, we are funding "friends" who are enemies in deed. We call Saudi Arabia a friend, but its aims pose at least as much of a long-term threat as those of Saddam's Iraq and the mullahs' (not Ahmadinejad's) Iran. The money we spend on oil flows into Saudi coffers and then off to various Wahhabi radicals. To take just one example, Saudi money feeds the Wahhabi proselytization that has turned Europe into a cultural powder keg.

The most pernicious effect of our Middle Eastern oil addiction is that it retards the region's political development, keeping it mired in despotism and instability. Oil revenues in Gulf states make taxation there largely unnecessary.

Taxes are, historically, the great motivator for democratization. If folks are made to pay taxes, they often militate for representative forms of government. That's one of the reasons most oil-rich countries


have meaningful elected assemblies. For the Gulf OPEC states, oil has lubricated tyranny at home and radicalism abroad, making for instability, conflict and much unpleasantness.

Policy observers long have recognized our oil problem. Nearly every U.S. president since Richard Nixon has made noise about achieving oil independence; none has gotten far. But we may finally have reached a point where there's enough consensus - and concern - to build toward real action. If so, then what is to be done?

Let's start with the basic facts. The Department of Energy reports that the United States consumes 20.7 million barrels of oil per day. We produce 5.1 million barrels daily. About 68 percent of our consumption goes toward transportation. Mind the gap.

This equation has two sides - supply and demand. The supply side is difficult to change. There was much ado about drilling in the Arctic National Wildlife Refuge a few years back. Without having to re-litigate that fight, it's worth observing that ANWR's 10.3 billion barrels of reserves would yield only an additional one million barrels per day, give or take. Nice to have, yes, but it would not change our strategic position.

There are other possibilities for increasing supply; some may even be worth pursuing. None of them amounts to more than tinkering at the margins.

Which leaves us the demand side.

The purely conservative approach, of course, is to hurry up and do nothing. Markets are reasonably efficient engines; eventually, left to its own devices, the market will solve our oil problem. There is a reason the world never "runs out" of finite physical resources such as minerals or metals: Markets conserve them.

But when it comes to oil, there are externalities that markets cannot easily process. Environmental impact is a classic one. Even more immediate, more obvious, are the national-security implications of the oil trade. The market cannot assign the costs of, say, positioning an aircraft carrier group in the Persian Gulf - or fighting a war - to American petroleum companies. Eventually, citizens and taxpayers, not oil companies, pay those costs. By the same token, the market cannot establish the cost of funding Wahhabi radicalism or weakening Middle Eastern liberalism, both of which occur as a result of our oil consumption.

How do we solve the problem of externalities? The answer is almost always government action. Proposals range from the mundane (upping fuel-efficiency standards for automobiles) to the exotic (changing car insurance rates to reflect miles driven). The biggest idea lurking out there, the one nobody wants to talk about, is the gas tax.

We already tax gas, of course. States vary their rates; the federal tariff is 18.4 cents per gallon these days.

As a general principle, taxes are evil. Well, perhaps


is too strong a word, but taxes are most often a source of inefficiency: They distort and clog markets. But if a market is fundamentally distorted to start with - and the oil market is - taxes can be a necessary evil.

Imagine a steep gas tax that was a pure consumptive tax - that is, all of its revenue was funneled back to taxpayers in the form of income tax cuts. That might stand a chance of (a) changing consumer behavior; and (b) spurring innovation by business, hence; (c) costing us less blood and treasure in our attempts to ensure the stability of the Middle East.

Taxes might be bad economics generally, but when a market needs interfering with (a rare instance, and this is one), the least intrusive way is . . . it's hard to say this . . . a tax. If the goal is some alternative form of energy or a technological development that solves the problem, the government should not be in the business of trying to pick the winner (as it seems to be trying to do with ethanol). Governments are, again as a rule, not good at that sort of thing.

A gas tax wouldn't pick the next technological step. It might, though, goose the development process a bit. And it would be nice if we could prod the market into finding an answer, say, before we have to fight larger wars involving Saudi Arabia or Iran.

Whether a gas tax is the best solution is an assessment for another day. But it's an excellent starting point for a discussion we all are - or should be - finally ready to have.

One Last Thing |

Oil facts from the Department of Energy: