The US will have a reckoning, regarding it's profligate energy use: either by running out, or having to associate with undesirable oil exporting countries, or by affecting global climate change, or by any of another alternatives espoused by doomsayers.

Assuming that such a switch (from personal income taxes and payroll taxes) could be done gradually and smoothly, and would be revenue neutral, would you prefer to see taxes on income and productivity shifted to taxes on consumption of nonrenewable resources?

This is the thesis of Amory and Hunter Lovins and Hawkins in "Natural Capitalism." There is a lot to recommend this approach because it would make use of efficient market mechanisms to allocated what we should treat as scare natural resources. There are a lot of real world problems that would have to be overcome, however. At what point would you tax resources in there use cycle? How would you set the tax on different resources (presumably one would want to tax the scarcest and environmentally damaging the most)? How would we make such a tax equitable between the well off and the not so well off?

In any case, it will take a major crisis before the body politic will consider such an approach.

True, the devil is in the details, just like our current tax system:
What is income? What is taxable? When should it be taxed?

I intentionally left the details out, on the basis that I did not want to debate details, but rather, given the choice of taxing what we tax now (wages, income, investment) or taxing nonrenewable consumption, which would you prefer.

But, for the sake of continuing the debate, I would prefer taxation at the point of consumption, given these definitions:

refined oil isn't nonrenewable, oil in the ground is, in that we can refine more oil (for now) but we can't really place more oil in the ground. Similar ideas for ores, coal, etc. Such a tax would be assessed at the point of extraction.

I'd also like a 'consumption' tax on the use of ground waters, surface waters, and atmosphere - a tax against the consumption of waters, and the pollution of all three.

My basic theory is that the prime arguments against pollution taxes is that they'd be harmful to the economy (usually this argument is paired with the "there's nothing we can do" argument); merely SHIFTING taxes shouldn't be harmful, and could be helpful. Taxes against wages, income, and investment tend to depress wages, jobs, and incomes. Taxes against consumption and pollution should depress consumption (of nonrenewables) and pollution.

A particular benefit of limiting the consumption tax to nonrenewables is that they are not produced - they are merely taken. Reducing their consumption doesn't directly put anyone out of a job, and in fact, should create new jobs to exploit new and shifting markets for alternative products.

I found your elaboration a little confusing in that you state that you prefer the tax to be imposed at the point of consumption and later indicate that mined or extracted resources would have to be taxed at the point of extraction. I would think that it would have to be one or the other or things would get very complex. In fact, it would seem that only an extraction tax would be simple enough to administer in the real world. Otherwise some bureauracy would have to analyze each produced item or service to determine what non-renewal resources it contained and what tax applied. The scheme would have to be combined with carbon and polution taxes as well since the global commons (atmosphere, oceans, and water resources) need similar allocation and protection.

It struck me that all this harks back to Henry George and his "single tax" on land.

Article on HG

Keep in mind that classical economists considered all factors of production to be lumped together into Land, Labor, and Capital. Hence old Henry meant much more than what we call land. Perhaps, if his ideas had become the main stream at the turn of the century and refined to accomodate modern conditions, we could have had a mechanism to assure a rational allocation and conservation of natural wealth.

Ah, the confusion is due to the particular way I think of 'consumption' and how i define the resources. The short response is 'tax at extraction'.

The slightly longer elaboration is that I consider extraction to be consumption of nonrenewables. Consider oil. Crude oil in the ground is nonrenewable. Consumption of this should be taxed. Crude oil that has been drilled and pumped has had value added to it, and can be considered a processed good. Same goes for refined oil, etc. I would however, also tax oil produced for combustion based on it's polluting properties.

One problem you have with taxing at the point of extraction is that there are many different governments who "own" the extraction points. Given the market forces that apply to which companies get access to which nationalized raw material reserves, I don't think this idea would work. You could do this with coal in the U.S., for example, but not for oil in Nigeria or Venezuela without the cooperation of those governments, something you aren't likely to get, even if it purportedly benefits them.

It seems to me that even if you taxed it every step of the way, you would only be applying pressure for these steps to be done outside the U.S. -- until the final unavoidable step of actual retail purchase for use in the U.S. If you want to tax consumption, you should tax consumption at the retail level.

In my opinion, any consumption tax should go to provide subsidies for recycling raw materials, which is the real long-term solution. I'm OK with payroll taxes, but maybe that's because I'm self-employed.

Would you prefer to see taxes on income and productivity shifted to taxes on consumption of nonrenewable resources?

I definitely would prefer taxes on inefficient, damaging behaviors instead of productive behaviors. It just makes sense. I wouldn't want a VAT tax on the processing of the nonrenewable resources because that is a productive behavior. The consumption is unproductive.

There is a problem though. Taxing nonrenewable resources cannot possibly fully replace income and payroll taxes. They would have to be extremely high. For example, after much calculation I found that a 60 cents tax on a gallon of gasoline would create about enough revenue to remove just the bottom 10% income tax bracket on the first $6000 of earnings(about $65 billion). Considering our annual budget is $2.3 trillion, is there really enough nonrenewable resources to create enough revenue? There might be. You're considering land as a nonrenewable resource aren't you SWC?

Another thing to consider, what about products where the nonrenewable source can be largely recovered? An example would be plastic milk bottles that are recycled. If the oil isn't lost, should it be taxed as heavily?

Either way, doing this on some level makes great sense. I'm just afraid if you don't totally eliminate a payroll or income tax, that they will just start to creap back up on us.

Here's an idea - instead of libertarian fantasies that this is a Manichean choice between one type of taxation you don't like in principle but which (almost) pays the bills, and another that you do like in principle but would be pragmatically impossible without largely abolishing all the functions of government (it would hardly pay for the defence budget almost nobody objects to), why don't you tax both incomes and profits and consumption?

Heck, you might even be able to start paying down your defecit that way, so you not only help make the world a cleaner healthier place for your children and grandchildren, but you make it one in which they aren't paying off the bills tomorrow that you have run up today. Wouldn't that be a novelty?

I very much like your idea. I would extend it slightly to address all forms of abuse of the commons: consumption of nonrenewables and release of pollution. I would apply the tax at the point of consumption, whether industrial or retail. Thus, the oil-fired power plant pays a tax on the oil it burns and on the pollutants it releases. The principle is clean and all-encompassing. You pay your tax on your non-renewable when you purchase it. Every year, your car or power plant gets measured for its emissions and pays a tax on those emissions (yes, there's a bit of a problem with cars in that they drive different distances, but I think we can apply an average value as an adequate approximation. Or perhaps we can use the odometer reading.)

Every non-renewable and every pollutant has its own tax rate: one rate for CO2, another for SOX, a third for CO, and so forth.

Here's another problem: the production chain inputs and outputs. Crude oil goes into a refinery and comes out as gasoline and other products. Do we tax the refinery or the consumer at the gas station? I think that the refinery is the place to apply the tax. If gasoline is imported directly, then that gasoline is taxed at the POE. Of course, if we don't get the numbers right, somebody will try to arbitrage the difference between the tax at the refinery and the tax on the finished product at the POE, but this can be worked out.

Somebody pointed out that an excessively high price on gasoline would be prohibitive. However, don't forget that personal income leaps by roughly 30% without an income tax. Such a system will jerk the economy around as the distortions of the current taxation system are replaced with a new (and more socially justifiable) set of distortions. So we want to phase it in over a period of about a decade. That should address most of the serious capital replacement problems.

One other hidden benefit of such a tax system: it would abolish the rat's nest of tax breaks that has been built up over the years by special interests. The tax code is a monstrosity, full of special deals for people who've paid off the right Congresscritter. Sure, they could still do it, but this way they'd have to start all over with a clean slate, and we might be able to get a decade or two of relatively clean taxation.

My My julian, aren't we in a snit this morning?

If you'll notice the first post:


Kind of implies taxing both, doesn't it? Also, I've objected strenuously to the defense budget, as have many others. The question at hand was whether it's better to tax someone for generating income or for using resources that no-one made.

Hey, I don't make fun of your socialist fantasies, lay off mine. And as a point of order, it's somewhat of a green fantasy as well.

SWDC, never attribute to malice that which can be adequately explained by incompetence.

Much better. Slowly going from one to the other would be beneficial. Ideally, it would be best to remove barriers of being productive completely and I was wondering if you see this as a possibility long term? In other words, is/should there be a limit to how far this goes?

This sounds good on the surface. Maybe people would go to using more man powered transportation like bikes. But then you will have an outcry from those who are disabled and cannot use a bike and then will say they are unfairly hit by this gasoline tax because they are unable to use a bike for transportation. Also what about extreme cold climates where the use of such transportation would be severely limited by the weather conditions(ex: Alaska). These people would feel slighted as well. Then the loopholes begin when special circumstances are introduced for those with special needs.

There should be a tax on non renewable energy resources. But it should not be used as a substitute for regular taxes due to the finite amount of oil. Rather this tax should be used for only one purpose. And that purpose should be for getting America off foreign oil. The tax could be used for building wind mills, solar panels, and a national rail system.



Assuming that you get all the oil suppliers to agree on this, it would still have the same effect as taxing the consumer. All you would be doing is collecting the tax from the seller instead of the buyer.

Ahhh, I see. Please note that a good deal of petroleum is not used for energy at all, but goes into the production of synthetic fabrics, tar, plastics, rubber, and the like. How exactly are you proposing that this distinction be made at extraction? Or, are you proposing that those industries that make use of petroleum in this fashion be singled out for carrying the tax burden as well? If so, then consider the fact that this would likely cause increased use of alternatives which require more energy to produce (aluminum, etc)....thereby increasing the use of the very energy you are trying to reduce. What about the use of plastics and rubber in creating products for production of renewable energy? Taxing them will then just raise the cost of providing the energy alternative you seek (wonder what those solar panels are made of now?) Or is this whole concept becoming a little more complicated (as most things do)?

Indeed, petrochemicals are a major industry that consumes plenty of petroleum. Any tax on petroleum would have to apply to this use as well. However, I don't see any serious problems with it. The raw petroleum component of most petrochemicals is not a major cost factor. The primary costs here are processing costs. So a tax on petroleum feedstocks to the petrochemical industry would not have much impact on the end prices of most petrochemicals.

I disagree. The cost effect of more expensive oil will decrease the use of oil, through conservation and use of alternate energy sources. The government won't have to fund these things: individuals will pay for them in order to avoid high-cost oil, they'll also have more money to do so due to the concurrent reduction in other taxes. I tend to think that competition in producing alternative energy (and conservation) would be much more effective than Billions$ in corporate welfare, spent as determined by Congress. There just aren't big campaign contributions from 'conservation' - no one's selling it. I feel that if we let Congress decide where to spend this money it will go to researching a hydrogen economy that's 20 years off (and an energy loser) or corn subsidies for ethanol (which is an energy loser). The closest i'd get to mandatory spending on these things would be to ameliorate the regressive nature of such a tax.


Yes and no. Don't believe the hype that all taxes are borne by the consumer. Taxes have distorting effects on market choices, as do market externalities. The consumer may well see the tax at the pump in the form of higher prices, but the producer will also pay the tax in the form of reduced consumption, as the consumer will make different choices based on the economics of the situation. I tend to view taxing oil and burned fuel as collecting externalities rather than assessing a tax - these externalities currently have economic and other costs that are not borne by the consumer.



The nature of the tax would depend on what the goal was. If the goal was reduced dependence on oil, then yes, anyone who uses oil anywhere in their processes would see a rise in their prices (or a reduction in their profits) and thus a reduction in consumption. While I like this goal, I tend to favor reducing dependence on fossil fuels in general, and support a carbon tax, which would have slightly different ramifications. For example, oil made into plastic doesn't release carbon like oil burned, and wouldn't face a carbon tax.

Regarding collecting royalties for extraction, the general economic consensus is that, if structured properly, royalties / leases / etc. do not cause economic distortions, in that they do not affect the production of those resources. When SuperOilCo looks to buy oil reserves, they pay the owner of those reserves. I'm claiming that since no one created those reserves, no one has a legitimate claim to them, other than, perhaps, the people of the nation that contains the reserves and recognizes the rights to extract from those reserves. While I believe that if the US did this, it would not affect world oil prices, I would not be averse to assessing a similar tariff against imported oil.

All of these taxes would raise the price of energy. As the price rises, the consumption of energy will decrease. In the short term, there are not terribly many ways we can significantly decrease our consumption, especially without serious damaging effects to our economy. However, in the long term, business patterns, land use, and energy markets will adapt to use less energy intense processes. These taxes on fossil fuels, while raising the overall price of energy, make alternatives like conservation, solar, wind, nuclear, and biofuels more attractive.

I still do not see what is wrong with just taxing the consumer directly. The processing of the oil into gasoline is productive. The transportation to the pumps is productive. The actual use of the limited resource has become unproductive.

Making plastics is more productive than using oil to allow us to drive oversized vehicles or 300 hp sports cars. By taxing at the point of consumption, you could apply different rates to different activities. Either way you gain dual efficiencies by taxing work less and encouraging wiser use of nonrenewables, but I just don't see the advantage of taxing at extraction.