20
Jun
11

A variable oil tax would be so sweet

First, take a look at this, my latest article on Policymic, where I write pretty regularly.

A really smart policy would be to tax oil NOT at a fixed rate, but rather at a variable rate depending on what the world price is. If the prices becomes low, the tax should increase to compensate, keeping oil prices always above a certain FLOOR. This means that entrepreneurs looking to develop alternative energy sources can factor OUT of their calculations oil’s huge variability and so count on oil remaining at or above a certain target price.

Also, this move would be politically smart because when oil prices started to rise, the tax would decrease, thus preventing congress from getting heat for keeping a tax in place even as ordinary Americans were hurting (as would be the case of the if tax amount stayed constant).

Lastly, such a tax would smooth the amount that consumers pay regularly for gas and so would help in budgeting, another predictability benefit that would accrue to ordinary people. As a country we would be less vulnerable to sudden spikes in price (to some degree) and might even dull the ability of OPEC countries to threaten supply disruptions.

I think there may even be other benefits that I didn’t get to list here.

 

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