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Wednesday, June 02, 2004

STRATEGIC CASE FOR PETROL TAX With all the excitement over rising oil prices I though I would just link to this Charles Krauthammer piece:

The idea is for the government -- through a tax -- to establish a new floor for gasoline, say $3 a gallon. If the world price were to rise above $3, the tax would be zero. What we need is anything that will act as a brake on consumption. Since America consumes 45 percent of the world's gasoline, a significant reduction here would bring down the world price.
But the key is to then keep the tax. Indeed, let it increase to capture all of a price reduction. Consumers still pay $3, but the Saudis keep getting lower and lower world prices. The U.S. economy keeps the rest in the form of taxes -- which should immediately be cycled back to consumers by a corresponding cut in, say, payroll or income taxes.
Keep gasoline prices high and American consumers will once again start demanding and buying lighter and more fuel-efficient cars -- exactly as they did in the late '70s and early '80s. Prices will continue to drop, and the U.S. economy will capture the difference.
It's a perfectly virtuous circle. It requires only a modicum of political courage. Which is why it does not stand a chance of happening.
Despite Krauthammer's pessimism I still hope this idea will be able to get more support. While I see that there is a problem for people who are dependent on cars and the fact that such a tax would be a regressive tax that would hit lower-income groups the most, I think the strategic imperative is wholly convincing.

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