The Oil Tax Revisited

by Reihan Salam

In an interview with Brad Plumer, Michael Levi makes a politically attractive case for an oil tax. A new CFR Energy Brief by Levi and Daniel Ahn presents a model in which an oil tax delivers impressive benefits:

The end result: The U.S. economy performs better when there’s oil tax revenue to fend off spending cuts and tax hikes. GDP rises faster and unemployment falls further.

Why might this be? For one, Levi explained in a phone interview, a big portion of the oil tax would fall on foreign countries, since the United States still imports about one-third of its oil. What’s more, oil in the United States is relatively lightly taxed. “Raising taxes on something that’s under-taxed, like oil, rather than something that’s already heavily taxed, like income, can yield good results,” he said. [Emphasis added]

Evan Soltas, drawing on a Rand Corporation report by Keith Crane, Nicholas Burger, and Martin Wachs, has also touted the potential benefits of an oil tax. But as attractive as the idea of imposing a tax on foreign oil producers might be, the dramatic increase in domestic oil production makes it an even harder sell than it would have been otherwise.

The Agenda

NRO’s domestic-policy blog, by Reihan Salam.