An oil import fee would damage the US economy
AN oil import tax, which has been proposed in Congress as a source of revenue to reduce the United States federal budget deficit, would be a jackboot on the neck of the national economy. Home heating oil and gasoline prices would soar by as much as 24 cents a gallon. Utility charges and prices for many consumer goods, especially petroleum-based products, would escalate dramatically to offset higher operating costs.
Inflation and unemployment would surge, and the unsustainable trade imbalance would be further exacerbated as US products became more expensive, both overseas and at home. The economy would lose an estimated $200 billion over the next 10 years, and while the tax would save an estimated 120,000 oil-industry jobs, it would be at the expense of some 400,000 jobs in other fields.
Although the tax would be applied only to foreign crude, which accounts for about one-third of the 6 billion barrels of petroleum consumed in the US annually, the price of domestic oil would also rise, since it is pegged to the price of imports. The US Treasury would collect $10 from each barrel of imported oil, but would receive little in the way of additional tax revenue from the price increase for domestic oil. The markup would be a Golconda for American producers, who would reap a $2 windfall for every dollar derived by the Treasury from the import fee. The magnitude of the bonanza becomes devastatingly clear when it is realized that a tax that raised $20 billion in federal revenues would cost consumers throughout the country about $60 billion.
The economies of all but the eight largest oil-producing states would be adversely affected, particularly those of the ``rust belt'' states.
A study by the Northeast-Midwest Congressional Coalition, which is made up of members of Congress from the 17 states in the region, indicates that a $10 fee would have the effect of shifting $16 billion out of the economies of New Jersey, New York, Florida, Pennsylvania, Ohio, Illinois, Georgia, and California, which are the states most dependent on petroleum. An estimated $12 billion of that money would flow to Alaska, Louisiana, Wyoming, Texas, Oklahoma, North Dakota, Utah, and Montana, the eight largest oil-producing states.
As the study suggests, an import fee would be an economic steroid for the big oil states, but a blight on the economies of the other states. The regional patterns of oil consumption show that the Northeast is disproportionately dependent on petroleum products for residential, commercial, and utility applications. There are, however, individual states in other parts of the country that also account for a significant share of the petroleum consumed by these sectors. States in the Midwest, South, and West account for the lion's share of the petroleum consumed by industry and the transportation sectors. Most of these states lack significant oil production and would be seriously hurt by an oil import tax.
Besides the inherent regional inequities, an import tax poses ominous consequences for American manufacturers. Because they would be forced to pay higher prices than foreign competitors for energy and petroleum-based raw materials, their products would be less price competitive in world markets. American exports would suffer and imports would surge. Japan, West Germany, and France, our major trading competitors, would be handed an advantage.
Another troubling aspect of an import tax is that it would undermine relations with Mexico, Venezuela, Canada, and Britain, which account for a large percentage of US oil imports. They would be financially harmed by any tax-induced reduction in US imports or rollback in world oil prices. Mexico and Venezuela, both friends and heavy debtors, would be more hard pressed than ever to meet their payments to US financial institutions if their oil revenues declined. And while the impact would not be as severe on Canada and Britain, they are among our most valued trading partners and allies and should not be subjected to the economic fallout that would be caused by such an odious tax policy.
As one pundit aptly put it, to enact an oil import tax would be akin to shooting ourselves and our friends in the foot.
US Rep. Matthew J. Rinaldo is a Republican from New Jersey.