Federal Budget Issue: Do We Need an Energy Tax?

Policy Backgrounders | Taxes

No. 127
Friday, June 04, 1993
by Stephen Moore


Background of the Energy Tax

The debate on an energy tax is not new to Washington. For many policy analysts, it is the dream tax - a cure-all for some of America's vexing economic and environmental problems.2

  • During the energy crisis of the 1970s, when energy prices were rising rapidly, proponents of the tax said that it was necessary to break the back of OPEC. (OPEC was eventually defeated through deregulation, not taxation).
  • In the early 1980s when oil prices reached their peak of nearly $35 per barrel, many environmentalists said that the era of cheap and plentiful energy was forever ended and that a tax was essential to promote conservation. (Over the next ten years, without any new energy tax, energy prices hit their lowest real level in two decades, and reserves skyrocketed.)
  • By the mid-1980s when energy prices were plummeting, energy tax proponents made a 180-degree turn, arguing that low energy prices were a curse, not a blessing, and urging the government to raise U.S. energy prices to European levels.
  • In recent years, energy tax enthusiasts have maintained that such taxes would reduce pollution, reverse global warming, improve America's trade imbalance, raise the value of the dollar and reduce the deficit.3

"The energy tax has been touted as a panacea for almost every economic and ecological crisis."

In sum, over the past several decades the energy tax has been touted as a panacea for almost every economic and ecological crisis that has confronted the country. Even though the arguments for the energy tax have proved groundless, support for the concept has never waned. The Clinton administration has now combined virtually all of these arguments to promote its version of the energy tax.


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