Monday, August 25, 2008

Forcing the Oil Price Lower

As even American consumers are learning, oil is money; less well known is how this money feeds Saudi Arabia and its worldwide network of Madrasses, those fundamentalist schools propagating Islamic Radicalism. Oil money also underpins the Iranian regime and its active support of terrorism via Hamas and Hezbollah.

Paying five dollars per gallon versus four dollars per gallon channels an extra $100 billion of disposable income to these radical Islamist regimes, keeping them awash in even more petro-dollars for their many nefarious schemes.

Why don’t we pay ourselves that extra dollar, that extra 100 billion?

If we add a $1 tax for every gallon dispensed in the USA, then, counter-intuitively, the ultimate price of gas would in fact be forced to drop: First, the U.S. government would have an extra $150 billion with which to increase alternative energy funding, expand safe and environmentally-friendly oil and gas exploration, as well as nuclear and hydroelectric power stations; all crucial contributors to our vital energy independence. This windfall could further fund Social Security and Medicare and reduce income taxes and our national debt, thus endearing this revolutionary tax to Democrat and Republican consumers alike. Even with a $1 tax hike we would still be paying a third less per gallon than all of Europe. It’s the fairest of all taxes as one pays only for what one uses.

Alternatively, and perhaps more palatably for the American consumer, this gas tax could directly reduce sales or property taxes. Thus we would tax that which is detrimental to the environment and our society and give relief where it counts.

Second - and most importantly - this tax would discourage and depress domestic oil consumption substantially. The shock and size of the tax would likely produce a modest glut of oil worldwide, reducing the price of oil in world markets. This consequential fall in the price of oil would critically reduce by tens (and possibly hundreds) of billions of dollars the blood monies flowing to terrorist-supporting states; American coffers, on the other hand, would be filled instead. Ironically, then, some or all of the tax would effectively be paid by Iran and Saudi Arabia, by Venezuela and the OPEC cartel. The American consumer will thus be actively financing freedom instead of terror.

There has been little public discussion of this eminently rational project, truly an honest and elegant solution to arguably our nation’s most pressing concern. The myriad negative externalities associated with oil consumption, terror financing, higher military spending, environmental degradation, among others, should realistically be factored into the price of a gallon of gasoline. While difficult, it should not be impossible to sell this concept to the American public if the consumer understands that when the cost of terror is applied to the price of oil in the form of a transparent tax, billions of dollars will be removed from terror states and to be reinvested in our economy, our country and our energy independence. We will thereby reduce the ability of our enemies to blackmail us, to influence Washington and peddle their agendas worldwide. Call it a “redemption tax.”

Madrassas and terror organizations will run short of funds. Decreasing gasoline consumption with a concomitant increase in alternative energy production will further depress the price of oil, perhaps back to $3/gallon where we started, or even lower.

When gasoline is burnt it emits pollutants. Higher gas taxes as part of a broader carbon tax are the most direct and honest policy to address our environmental concerns. Moreover, the tax would reduce road congestion, gridlock and the inordinate waste of time most of us spend on the highways, quite possibly now costing us another 50 billion dollars or more in decreased productivity. Substantial reductions in road rage and frustration therapy would, I’m sure, be much appreciated by our psychological fraternity.

Consumption taxes are always better than income taxes; the latter discourage savings and investment. This direct tax, by common consensus, would be more favorable to economic growth, encouraging the search for gasoline substitutes and fuel-efficient cars, and more research and development spending on alternative fuels.

Alan Greenspan, the former Chairman of the Federal Reserve, has called for higher gas taxes, noting, in one of his more lucid moments, “It’s a national security issue.” The gas tax is an efficient economic policy that is also an effective foreign policy. It will give America more clout as falling gas prices will tilt power and influence back toward the world’s democracies and away from the oil producing autocracies. Higher gas taxes may not be attractive. However, the alternatives are certainly far worse.

Finally we need to set a fixed floor price for gas - perhaps at say $100 per barrel - that guarantees to all gas as well as alternative fuel investors, researchers and developers that this minimum floor price can be relied upon to ensure energy competitiveness over the long term. Any drop in the oil price below that floor level can be taxed to make up the difference, the revenue thus generated perhaps being allocated to reducing our exploding national debt. Many venture capitalists and developers of new oil fields and alternative energy are reticent to invest what it takes to bring vast new energy resources to fruition for fear that a collapsing oil price will destroy their viability. The floor cap does away with all these impediments and guarantees price stability (on the downside) for all levels in the energy cycle.

We need to plan ahead. To phase in the gas tax would be the softer political approach but would dilute the “shock value” which ultimately will cause the price at the pump to drop by more than the tax increase itself. Instead of us subsidizing world terrorism and its associated anti-American hate-fest, this tax will indirectly ensure our energy independence, a brighter economic future, and ultimately the strengthening of our freedoms. Instead of economic collapse driven by ever increasing gas prices (as predicted by our salivating enemies, including Osama bin Laden), we will be initiating our rebirth as a great and independent nation and a light unto the world.

Posted on

Time to Change our Oil Policy by Bernard Munk

Raise the Gas Tax - N. Gregory Mankiw (WSJ)

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