By Institute for Energy Research ——Bio and Archives--January 24, 2015
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The [gas tax] hike should…be…$1. And the proceeds should not be spent by, or even entrusted to, the government. They should be immediately and entirely returned to the consumer by means of a cut in the Social Security tax. The average American buys about 12 gallons of gas a week. Washington would be soaking him for $12 in extra taxes. Washington should therefore simultaneously reduce everyone’s FICA tax by $12 a week. Thus the average driver is left harmless. He receives a $12-per-week FICA bonus that he can spend on gasoline if he wants — or anything else. If he chooses to drive less, it puts money in his pocket. (The unemployed would have the $12 added to their unemployment insurance; the elderly, to their Social Security check.) The point of the $1 gas tax increase is not to feed the maw of a government raking in $3 trillion a year. The point is exclusively to alter incentives — to reduce the disincentive for work (the Social Security tax) and to increase the disincentive to consume gasoline. It’s win-win. Employment taxes are a drag on job creation. Reducing them not only promotes growth but advances fairness, FICA being a regressive tax that hits the middle and working classes far more than the rich.
The beauty of the [gas] tax — as a substitute for a high world price — is that the incentive for fuel efficiency remains, but the extra money collected at the pump goes right back into the U.S. economy (and to the citizenry through the revenue-neutral FICA rebate) instead of being shipped overseas to Russia, Venezuela, Iran and other unsavories. Which is a geopolitical coup. Cheap oil is the most effective and efficient instrument known to man for weakening these oil-dependent miscreants.In the context of his article, it seems clear that geopolitical concerns are the central driver of Krauthammer’s analysis. (Unlike progressives who focus front-and-center on climate change and conventional air pollution, Krauthammer relegates those issues to the end of his piece, and acknowledges that conservatives are skeptical of such matters.) Yet even on his own terms, Krauthammer’s recommended policy would do very little. The United States is rapidly losing its dominant position as a consumer of oil. According to the most recent projections put out by the EIA, the United States’ share of consumption of “petroleum and other liquids” goes from 21% in 2010 down to 15% by 2040. The drop in the U.S. fraction of global demand is made up by China’s share, which rises from 11% in 2010 to 17% by 2040. (In the projections, China overtakes the U.S. as the world’s largest petroleum consumer in the year 2035.) In terms of absolute consumption (measured in BTUs), the U.S. is projected to slightly drop from 2010 through 2040, whereas China grows a whopping 116% while India surges 111% over those three decades. Africa’s consumption rises 83% over that same period. It is true that an artificial reduction in U.S. demand for petroleum products would make the world price of crude lower than it otherwise would be. However, as the above figures indicate, the U.S. is already poised to be a shrinking consumer on the world market, both in absolute terms but especially as a share of the total. We must also keep in mind that if the U.S. were to significantly curtail its consumption at an even faster rate than the current trends indicate, it would also accelerate the growth in consumption elsewhere. This is because shrinking U.S. demand ? lower world crude price ? increase the quantity of crude demanded in China, India, and so on. In other words, by effectively refusing to buy oil from OPEC nations, Americans would not ruin their markets; instead they would simply sell that oil to other buyers, at lower prices of course. Rather than punishing U.S. consumers with a gas tax as a way to reduce world prices, a much more sensible approach would be to reward U.S. producers by removing obstacles to production. This includes approving the development of oil and gas resources on federal lands, both onshore and offshore, but also eliminating the anachronistic ban on crude oil exports. Getting the federal government out of the way of international pipelines would be another way to foster the development of a North American energy bloc that would greatly reduce the economic power of OPEC nations. Best of all, these policies really would be pro-growth and make Americans richer. It’s important to note that one of the reasons oil prices have dramatically fallen over the past year is because of pro-growth policies on private and state lands that lead to the massive expansion of domestic oil and natural gas production. In other words, we have already seen countries like Russia, Iran, and Venezuela take a massive financial hit, but that occurred in large measure to growing domestic oil production, not massive taxes on oil, such as taxes in Europe.
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The Institute for Energy Research (IER) is a not-for-profit organization that conducts intensive research and analysis on the functions, operations, and government regulation of global energy markets. IER maintains that freely-functioning energy markets provide the most efficient and effective solutions to today’s global energy and environmental challenges and, as such, are critical to the well-being of individuals and society.