The Time Has Come

Congress now has the opportunity to serve three important purposes by enacting one simple and relatively painless measure. That measure is the proposed $5-a-barrel fee on imported oil. This is what could be accomplished:

First, at current rates of consumption the oil fee would raise more than $9 billion a year, making it a significant source of new revenue as efforts are made to reduce the swelling federal budget deficit.

Second, the fee would serve to put a floor under falling oil prices and so help assure the competitive vitality of the American oil industry. The market price of domestic oil would rise to keep pace with that of newly taxed imported oil. Much of this rise would be taxed away, bringing the Treasury additional billions in revenues. But profits to domestic producers also would increase, providing the means for expanded oil exploration.

Finally, the tax would be an incentive to continued energy conservation. This could be its most important contribution in the long run. The price of oil and the consumption of oil are linked. Let oil once again become too cheap, as it was in the early 1970s, and demand will jump, imports will soar and the United States will once again inevitably find itself dangerously dependent on unpredictable overseas suppliers and their economically crippling pricing policies. A $5-a-barrel fee that serves American needs is a small price to pay to avoid that.

The fee would be pretty much inflation-neutral. While it would arrest the downward, anti-inflationary trend in oil prices, it would not send those prices up above their recent levels. Passed through to consumers, the $5 fee would come to about 12 cents a gallon on gasoline and heating oil. Consumer prices have already fallen by more than that amount in the last year, and by next Jan. 1, when the proposed tax would take effect, they almost certainly will have fallen even more.

The almost infinitesimal price cuts that the Organization of Petroleum Exporting Countries has just adopted still leave OPEC’s official prices, at an average of close to $28 a barrel, well above free-market levels. Continued cheating on production quotas by OPEC members and expanding output by other cash-hungry oil exporters are expected to push prices steadily lower. Oil at $22 or even $20 a barrel before long is by no means inconceivable. The United States should be ready for that contingency with an oil-import fee. There is no better way to control a potentially perilous growth in energy demand, to insulate the nation against future OPEC-dictated oil-price inflation and to raise needed revenues. Congress has kicked around the idea of an oil-import fee for more than a decade. The moment has come for it to act.