There’s an editorial in today’s Washington Post suggesting something I’ve been advocating for several years.  While tax experts may be able to give reasons why this isn’t a great idea, I think it is something that needs to be seriously explored.  The idea is that the government would set a floor on the price of oil.  Whenever the price drops below that threshold, the government would impose a tax to make the price functionally equivalent to the threshold.  The editorial is entitled There’s An Energy Crisis.  Here’s an excerpt that gives an example of how it might work:

There is one way to maintain that progress without asking OPEC to keep prices high, and that’s for the government to set a floor on the price of oil with a variable tax. If the price rose back above, say, $110 per barrel, the feds would collect no tax; as it dropped below that, the government could levy sufficient tax to keep the price at the equivalent of $110 per barrel, to rise by a predictable percentage every year. Investors in wind and solar power would have certainty. The Saudis would not be unnecessarily enriched. And ordinary Americans wouldn’t have to suffer; Congress could rebate the money at tax time. This wouldn’t be about increasing government revenue, in other words, but about changing patterns of consumption.  

The idea is that there is no better way to force Americans to conserve than price.  As the Post editorial points out, high oil prices of late have finally begun to positively impact behavior — increased sales of more fuel-efficient vehicles, increased use of public transit, etc.  Readers of this blog will know that I am a strong advocate of increasing the domestic production of oil and natural gas.  This is not because I think as a country we should be using greater amounts of fossil fuels, I certainly don’t.  We are, however, 97% dependent on oil as a transportation fuel and that isn’t going to change overnight.  Until we can find an alternative to oil as a transportation fuel, we need to increase production of oil and natural gas at home and decrease our foreign imports.  The risks are simply too extreme, economic and national security, to continue to ship U.S. dollars abroad to purchase foreign oil (non-North American oil).  At one and the same time as we increase domestic production, however, we need to be moving with due dilegence toward decreasing our consumption of oil and increasing the competitiveness of alternative sources of energy.  Nothing will drive consumer behavior more efficiently than price — away from oil and toward alternatives.  There is also something to be said for price stability.  The pendulum of high and low oil prices doesn’t help anyone.  The Post suggests in its editorial that the collected revenues from the tax be returned to taxpayers at the end of the year.  While I think that it’s a great idea for lower income citizens, I think we should consider using some amounts of those revenues to fund research and development into and incentives for the use of alternate fuels and energy efficiency.  Democrats of late have been proposing to fund alternate fuel tax incentives by increasing taxes on oil and natural gas production companies.  That is counterproductive.  Let’s find other ways, such as this, to fund those incentives and leave the money with oil companies to incentivize them to increase domestic production.