New taxes = bad moos

By Eric Watkins
The idea behind a cash cow is to milk it for all it’s worth, isn’t it? That’s something the oil and gas industry knows well enough, being identified the world over as everyone’s favorite cash cow. Now, Rand Corporation has come up with new ideas to milk it.

According to a new study by the California-based think-tank, the US government could fully fund its surface transportation infrastructure needs by levying a percentage tax on crude oil and imported refined petroleum products.

Rand’s researchers, who very clearly want a just system, found that by replacing taxes at the gas pump with a percentage tax on oil, the tax burden would be spread across all users of petroleum products, not just motorists and truckers.

Those same researchers also want a tax that’s easy to implement and compute, so they say that their proposed new oil tax would also replace several taxes on fuels with one tax, and could be adjusted automatically to fund transportation expenditures.

“It would account for inflation, something that has eroded the value of existing fuel taxes,” Rand said, adding that the proposed oil tax could also help fund “national security needs to safeguard oil sources and sea-lanes used to import oil.”

Rand is proposing this idea, it says, because the federal gasoline and diesel taxes that American drivers pay each year “fall short” of generating enough revenue to cover the costs of building new roads and maintaining the transportation system they are intended to fund.

“Gas and diesel taxes have not been raised since 1993,” it said, as though the longevity of a tax is reason enough to raise it.

“There is strong opposition in Congress to raising any taxes right now,” said Keith Crane, the report’s lead author and director of Rand’s Environment, Energy and Economic Development program.

That’s a good point, and Rand researchers need to understand why there is such resistance. Taxation is hardly a popular subject, but it goes without saying that added taxes will be especially ill-received during an economic downturn such as the one now being experienced across the nation.

But Crane is undaunted by such thoughts. “The federal gas tax has not been raised in more than 18 years. There is a clear shortfall in meeting the nation’s surface transportation needs, and our research indicates a crude oil tax can close that gap.”

In Rand’s view, the tax rate on crude oil and imported refined petroleum products would depend on the price of oil. For example: the rate would change from 10% at $120/bbl, to 17% at $72/bbl, and 34% at $40/bbl to generate the same amount of revenue.

Do you think that sounds ok? Well, read on and find out who the tax hurts.

The tax would be collected at refineries, and the rate could be adjusted quarterly to account for changes in the price of oil. Motorists and truckers would pay modest increases in total taxes.

Homeowners who heat their homes with fuel oil would pay federal taxes on fuel oil where they had paid none before. Low-income earners and those in the north and northeast would likely be more affected than higher-income earners or those living in moderate climates, researchers said.

Motorists and truckers pay more. Homeowners who need to heat their homes pay more. Low-income earners would pay more. People in the north and northeast would pay more. And – magically – those who earn more would pay less, as would people living in moderate climates.

This is a fair tax? A just tax? Consider the worst-impacted group. Just imagine the feelings of a low-income earner in the midst of a Minnesota winter as he or she contemplates stoking up the oil-fed heater. Most people won;t warm to that idea at all. Nor should they.

Somehow, this tax proposal ends up sounding a lot less just than it started out. The best ideas don’t usually work that way, though, and this new idea of the Rand Corp doesn’t sound like one its best. Cash cow or not, Rand’s proposed new taxes are not the way forward for the oil and gas industry or its customers.

Rand's idea is just bad moos.

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