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Issue Position: Oil Import Tax

Issue Position

By:
Date:
Location: Unknown

It is vitally important that the United States embark on a plan to diminish the effects of the erratic swings in worldwide oil prices on the United States economy.

The major problem with any American Economic Stimulus plan including mine is that every time the American Economy begins to improve, Oil Exporting Nations begin to increase the price of oil. This leads to the double whammy of hundreds of billions of additional dollars leaving our nation for the Oil Exporting Nations and the psychological depression that Americans experience when they once again see $4.00 and up per gallon gas-o-line prices. It just saps the life out of the American consumer and slows the growth of the America Economy. It happened in the spring and summer of 2008 and it happened again in winter and spring of 2011. I believe that we must do something about this or else our economy will never totally rebound. We must achieve the overall objective of stabilizing oil prices within the U.S. for this to occur.

Therefore I propose that the U.S. impose an Oil Import Tax on every Barrel of Oil that enters our nation.

The General Oil Import Tax would be $20 per barrel. That would be the rate of the Oil Import Tax as long as the price of oil is in the normal or reasonable range of $40 to $80 per barrel.

For example, if an oil importer purchases oil to for $40 per barrel on the open market, the price after the Oil Import Tax would be $60 per barrel. If the price is $60 in the open market, the price after the Oil Import Tax would be $80 per barrel. If the price of oil is $80 per barrel in the open market, the price after the Oil Import Tax would be $100 per barrel. At each of these prices Americans will purchase less oil from foreign nations and purchase more oil produced here in he United States.

On the surface, the $20 per barrel Oil Import Tax would result in an increase of 48 cents per gallon for gas-o-line. However, because of the Oligopoly structure of Oil exporting nations and Oil Cartels and the excessive profits they received on oil, foreign oil exporters would eat at least half of the 48 cents or at least $10 per gallon and the price increase that Americans drivers would see would be no more than 24 cents per gallon.

In addition, when the price of oil begins to exceed the normal or reasonable range of $40 to $80 per barrel, the Oil Import Tax rate would increase by an additional $1 for every $1 the price of oil exceeds $80 per gallon.

For example, as the price of oil rises from $80 per barrel to $90 per barrel, the post Oil Import Tax price would rise from $100 per barrel to $120 per barrel. The purpose of this is to make the price elasticity of oil much stiffer when prices begin to exceed the reasonable cost of producing oil. In other words, as the price of oil rises a dollar above $80 per barrel, the price of oil faced by the American consumer would raise by $2 per barrel, resulting in a much larger drop in the quantity of oil demanded and purchased. Foreign oil producers would face a stiff drop in volume penalty for any increase in the price of oil, limiting the benefit of increasing the price of oil.

By implementing this tax a few things would happen. Americans would import less oil and produce more oil. As the price the increases, more money would continue to circulate within the U.S. as oppose to leaving the country and hurting the American economy. Profits of U.S. oil produces would increase, which means Federal and State Income Taxes would dramatically increase. Revenues to the Federal Government would also increase by at least $80 billion per year from this tax which would help reduce the Federal Budget Deficit and allow for the subsidy of the production of alternative energy sources such as windmills, solar panels and new products such as electric cars. The net usage of oil would be reduced. Americans would purchase more fuel efficient cars. America would become less dependent on foreign Oil.

In addition under this plan, when the price of oil begins to decrease to points below the normal or reasonable range of $40 to $80 per barrel, the Oil Import Tax rate would increase by $1 for every $1 the price of oil is less than $40 per gallon. This establishes a price floor for domestically produced oil of $60 per barrel. By establishing this price floor, domestic oil producers will be willing to produce more oil, and drill for oil in areas that they ordinary would not. This is because domestic oil producers all know that Saudi Arabia at anytime could flood the world market with oil as cheap as $10 per barrel. Therefore many domestic oil wells go un-developed. But with the permanent establishment of a $60 per barrel floor price for domestically produced oil, many of these wells will come on line.

I would image that within 2 years of implementing this Oil Import Tax U.S. Oil Imports would drop from 4.5 billion barrels per year to under 3 billion barrels. And within 10 years, Oil imports would drop to under 2 billion barrels per year.

However, since the U.S. is the world's largest importer of oil, if the U.S. becomes nearly oil self sufficient, the price of oil very well may totally collapse within 10 years. However, with worldwide demand for oil growing, that might not quite happen.

But the overall objective of stabilizing oil prices within the U.S. would occur.


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