Energy Taxes

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Energy taxes

The main energy tax levied in the United States is the one on petroleum , though the United States tax is half of the amount levied in other major industrialized nations. As a result, gasoline prices in the United States are much lower than elsewhere, and both environmentalists and others have argued that this encourages energy consumption and environmental degradation and causes national and international security problems.

In 1993, the House passed a Btu tax while the Senate passed a more modest tax on transportation fuels. A Btu tax would restrict the burning of coal and other fossil fuels and proponents maintain that this would be both Environmentally and economically beneficial. Every barrel of oil and every ton of coal that is burned adds greenhouse gases to the atmosphere , increasing the likelihood that future generations will face a global climatic calamity. United States dependence on foreign oil, much of it from potentially unstable nations like Iraq, now approaches 50%. A Btu tax would create incentives for energy conservation , and it would help stimulate the search for alternatives to oil. It would also help reduce the burgeoning trade deficit, of which foreign petroleum and petroleum-based products now constitute nearly 40%.

President Bill Clinton urged Americans to support higher energy taxes because of the considerable effect they could have on the federal budget deficit. For instance, if the government immediately raised gasoline prices to levels commonly found in other industrial nations (about $4.15 a gallon), the budget deficit would almost be eliminated. It is estimated that every penny increase in gasoline taxes, yields a billion dollars in revenue for the federal treasury, and in June 2002 the budget deficit was estimated to be about $6 trillion.

Of course, to raise gasoline taxes immediately to these levels is utterly impractical, as the effects on the economy would be catastrophic. It would devastate the economics of rural and western states. Inflation across the country would soar and job losses would skyrocket. Supporters of increasing energy taxes agree that the increases must be gradual and predictable, so people can adjust. Many believe they should take place over a 15 year period, after which energy prices in the United States would be roughly equivalent to those in other industrial nations.

Many economists emphasize that the positive effects of higher energy taxes will be felt only if there are no increases in government spending. It is, they believe, ultimately a question of how Americans want to be taxed. Do they want wages, profits, and savings to be taxed, as they are now, or their use of energy? In the former case, the government is taxing a desirable activity which should be encouraged for the sake of job creation and economic expansion. In the latter case, it is taxing undesirable activity which should be discouraged for the sake of protecting the environment and preserving national security.

See also Energy policy; Environmental economics

[Alfred A. Marcus ]



Marcus, A. A. Controversial Issues in Energy Policy. Phoenix, AZ: Sage Press, 1992.