In this IER post I take on a new paper (published through the Council on Foreign Relations) to impose a $50/barrel tax on crude oil. Some excerpts:
The Council on Foreign Relations (CFR) recently released a study by Daniel Ahn and Michael Levi showing how a new tax on oil—which would ultimately raise pump prices by $1.20/gallon—might benefit Americans. The two main reasons were: (a) right now oil is too expensive, so taxing it would help, and (b) The revenue from a new oil tax would allow the government to spend more money, thus making the economy stronger. If the reader has not yet fallen out of his or her chair, in the rest of this blog post I’ll show that I’m not making this up.
Step back and think about what that means. The CFR study is saying that if the government slapped a $50/barrel tax on oil, which works out to $1.20 per gallon of gasoline, and if it then used all of the revenue to increase government spending, then this would help the economy over an 8-year-period.
One might ask, almost in jest, “Well if a new oil tax of 1.5% of GDP is a good idea, why not make it bigger?”
Fortunately, the CFR study does just that. In the next section, they “demonstrate” that doubling the oil tax to 3% of GDP—i.e. $100/barrel of crude, or $2.40/gallon—and using all of the revenue to fuel government spending, would make the economy grow even faster, and create more jobs, than the Variation 1 from above.