Re: TownHall.com – 3/8/2008 – “On Those Oil Profits” – Robert Murphy

Murphy says of raising oil company taxes “it won’t provide meaningful relief revenue, but will certainly raise the price at the pump”. Duh … that’s exactly why taxes on the oil companies should be raised! As prices go up, demand goes down. And most of our current economic problems, excluding our current credit crisis, rise from our inefficient use of petroleum based fuels, especially foreign oil. Oil will not be used efficiently unless it is expensive --- our domestic oil consumption problem is not that oil is too expensive but that it is too cheap. If oil was more expensive we’d use much less of it. Clearly, too high taxes on oil companies can have extremely unfortunate consequences. But tax levels in Europe indicate that there’s a lot of tax revenue available in oil pricing that we could extract without damaging either our economy or the oil companies.

Although some people want to “punish” the oil industry for their success, I am not one of those people. I’d be perfectly happy to redirect the revenue back into the energy industry for research and development in oil extraction and refining efficiency and alternate energy development. Some might claim that government actions encouraging reinvestment in one area instead of another by tax policy is unwise. But we do it all the time, especially for the oil extraction industry, as with depletion deductions. There was a time where expediting the finding and extraction of oil reserves made really good economic sense --- the amount of undiscovered and undeveloped oil sources was huge compared to available supply and demand. But times have changed. There’s much less undiscovered and undeveloped sources of oil now (the undiscovered oil that were there before, less the oil we have discovered and developed since then) and demand in not only much larger, but still growing at a fanatic pace. Perhaps the time has come where more oil can be made available by increasing efficiency (using 1 barrel to do the work of 2 in effect is the same as finding an extra barrel of oil) and where other energy sources are price competitive with oil. Our tax policy should reflect this current situation (or probable future situation) rather than the situation 50 years ago.