The budgetary and economic effects of oil taxes
This paper analyzes taxes on oil or oil products. Such taxes have been proposed for a variety of purposes. One aim is to reduce the federal deficit. Another is to reduce US dependence on imported oil and its attendent risks to the economy and to national security. Some advocates of oil taxes see them as driving down further the world price of oil. Taxes are also favored as a way to assist the domestic oil industry, which is undergoing a severe contraction. Oil taxes would accomplish these goals in varying degree, depending on how a specific tax was designed. At one end of the spectrum, an oil import tariff would encourage conservation, the substitution of other fuels, and domestic exploration and production. At the other end, a general energy tax - such as an ad valorem tax on all fuels consumed - would lead to reductions in energy use but would do nothing to encourage the production and consumption of oil substitutes or the exploration and development of domestic oil supplies. Oil taxes also raise a variety of questions as to their effects on the economy, on foreign trade, on the distribution of income, and on specific industries such as refining. This paper examines five oil tax options: an import tariff of $5.00 per barrel on imported crude oil and $10.00 per barrel on imported refined products; a $5.00 per barrel excise tax on all crude oil (domestic and imported) and $5.00 per barrel on imported refined products; a $0.12 per gallon motor fuels tax; a 5% sales tax on all energy consumption; and a combination of a $0.06 per gallon tax on motor fuels together with a $2.50 tariff on imported crude and refined products. Since each tax would have different effects depending on the underlying level of world oil prices, and since there can be no certainty as to future oil prices, this report examines the taxes under three alternative assumptions: that oil prices hold steady over the next five years at levels of $23.00 per barrel, or $13.00 per barrel.
- Research Organization:
- Congressional Budget Office, Washington, DC (USA)
- OSTI ID:
- 7148264
- Report Number(s):
- NP-7900118; ON: TI87900118
- Country of Publication:
- United States
- Language:
- English
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