To lower the cost of gas, should the US Government impose a tax on purchases of Oil as a commodity?

Question

or as someone else suggested increase the margin requirments to make trades on barrels of oil ---forcing indviduals or groups to have more money to get into the oil speculation game. (I am still chewing on that idea. I think companies would still offer ways to work around that.)

I obviously don't mean "tax gas" and I am not talking about taxing Oil company's profits as some have --- I think that would be passed on as higher gas prices.

Unlike the "winfall profit tax" idea, I am talking about taxing people who really have no role in the production of Oil, therefore the costs of the tax would not be passed on to us.

I mean impose a fee on each purchase of oil on the markets. Make it painful for an investor to buy oil as a commodity. Create a financial incentive for investors to invest in other commodities or stocks or bonds. If they want to still invest in Oil, make it seem obvious that they get to keep more of a return investing in oil companies rather than the oil itself.

Answer 1

I might be mistaken, but I believe that airlines, truck companies, railroads, independent refiners, to name just a few buy oil futures.  Taxing the commodity will just raise the price of everything that oil goes into.  A better solution would be to place a gas guzzler tax on all cars, suvs, and pickups that get less than 28 mpg, mayb $2000 a year per vehicle. That would probably drop the price of oil faster than any other means.

Answer 2

What good would that do?  The speculation is global, not just U.S.-based.

Answer 3

A few years ago, Congress enacted a tax increase that changed the ball game. Rather than applying it to the next year's taxes, they applied it to the past year's taxes. Tax planning was suddenly burdened with an enormous question mark.

With that in mind, several major oil companies are stupidly sitting on tons of cash. Considering the political climate, just any day now they could be told to fork it over. Whatever it is called, there is the likelihood that the tax picture will change. You can't very well be committed to a new refinery, a major pipeline, even alternative energy measures (you might be amazed at how many literal billions of bucks of oil company money is in solar, wind, and alternatives ranging from seaweed to algae), if the government is going to jerk away a major part your income stream.

A lot of folks gripe about Exxon's profits, but few actually realize what a cash cow Exxon has been for the government. The federal taxes, fees, and royalties paid to the government are about what they earned in profits, and the government got theirs BEFORE the stockholders got the multiple billions paid out in dividends, AND Exxon received and paid a comparable amount of money in taxes the government imposes on consumers. Government has gotten an enormous amount of money from the oil companies, but of course the government wants more.

Now, I have to ask, if you are adding taxes to the price of the business, how in the world can you possibly imagine a lower price of gasoline? The petroleum industry is enormously expensive and you think you will make their product cheaper by making it more expensive?

Answer 4

I still believe in laissez-faire or "hands off".  Speculators aren't evil people trying to force us to pay more for oil and gas.  They're opportunists, and they look toward the future.  The stock market looks towward the future.  This is nothing new.  Companies like Sunpower trade at a P/E of over 300 because their future potential earnings is so high.

Analysts and even OPEC suggests that oil is only worth about $65/barrel . . . today.  Oil traders/speculators are thinking a year or more into the future.  The IEA is even concerned that output will fall not for lack of oil but for lack of investment in oil drilling.  Where do you think this investment will come from?  Petrobras has made two major finds.  Do you think they'd be aggressively pursuing new oil fields if prices were $65/barrel?  Oil exploration and rig operation is expensive.  Transocean is charging more than $500,000 per DAY for deep water drilling.  Could companies pay this price if oil sold for $65/barrel?

High oil prices may well be a boon to the US.  Would we be agressively pursuing alternative energy (solar/wind/etc.) if gas sold for 99 cents a gallon?  Would Americans be ditching their gas hungry SUVs for compact hybrid sedans if gas was 99 cents a gallon?  The crisis is provoking a profound change in the American lifestyle.  It had to happen sometime.

So I say no new taxes and no tax holidays.  Let the markets set the price for oil and gasoline.  It means hardship for many of us, but the markets will correct.  The lure of profits will draw in competitors offering cheaper solutions.  The markets will stabilize.

Answer 5

I'm not sure what you mean by "as a commodity".  Oil is a commodity.

Adding a tax to the purchase of oil will raise the cost of a barrel of oil, which the refiners will pass on in increased price of products like gasoline.

If there were no speculators, the price of oil would be more volatile, increasing the risk for companies in the oil business, who would increase their prices to cover the cost of the increased risk.

The US government does not have the authority to increase the general margin requirements on oil.  It could only do that on the New York Mercantile Exchange which is located in the US.  If it tried, all the traders in the world would move their activity to the Intercontinental Exchange, in London.  The only effect would be a bunch of unemployed clerks in New York.

The price of oil really hasn't gone up that much when looked at in Euros.  It's only on dollar price charts that it looks so high.  The reason is that the US dollar is no longer desirable as a reserve currency because of the huge amount of borrowing that the US government is doing to fund two wars and have tax cuts.  Look at the relative values of the USD and the EUR over the last two years.  I know a Canadian who crosses the border to buy cheap gas in the US.  (The Canadian dollar has risen against the USD, too)

Answer 6

The price of oil is driven somewhat by commodities being traded, however supply and demand will ultimately control.

Demand has risen drastically in recent years and countries like Japan and India are buying substantially more oil than in the past.

Imposing more taxation on oil would have a negative effect. Actually, tax incentives for more exploration would be a better approach.

Answer 7

uh... maybe. sounds good, but oil being an international commodity, i don't know how they could enforce it.

Answer 8

Most oil is coming into the country from outside the U.S.  The US oil companies buy it from OPEC and import it.  OPEC isn't going to lower its prices to the oil companies just because the US passes a tax, so it will be US oil companies will pay the tax.  Since all the oil companies would have to pay the tax, it would get passed on.  As far as oil trading goes...they can just move it out of the U.S.  NYMEX is the major futures player in that market now...but traders trade where the cost is less.  Make it too expensive, and that business will move to London.  Ditto margin requirements.  That business can be done anywhere...nothing says it has to be done in the U.S, and your regs won't stop oil speculation...just cost the US the business and jobs.    

Truth is that there isn't really much that can be done about oil prices.  Increases in demand have been outstripping increases in supplies for years.  Now we've getting to a point where demand exceeds supply, and there is starting to be a shortage.  That's what is causing oil prices to rise.  Oil prices are very inelastic, which means that it takes large increases in prices to drop demand a little bit.  If prices stay up, people will buy smaller cars, and conserve more, which will start to drop demand more.  US demand has actually been dropping for a while.  However, emerging countries such as China and India will continue to increase their demand, so the market will remain tight.   We may see some short term drops in prices, but the long term trend is going to be higher.  Supplies just aren't going up very fast.  There are some new fields in Brazil and in Saudi Arabia, but existing fields production declines over time, so it will take significant new discoveries even to keep worldwide production where it is.   One of the politicians down in Brazil says one of the fields down there has 32 billion barrels of oil.  But the world is using 31 billion barrels a year.  ANWR would only be 10 billion barrels...about 4 months of world supply and only about 18 months of US usage...a drop in the bucket, so to speak.  Long term, the solution is developing alternative energy sources, but that isn't going to happen right away.  We need to develop long range strategies for getting away from oil...maybe with oil prices the way they are now, companies will have an incentive to do that.  

Last note...I've followed oil since the 70's...OPEC has never really worked.  Someone has always cheated.  The reason OPEC is working now is because nobody's able to cheat...everyone but Saudi Arabia is running at full production.

Answer 9

the government should remove all energy from the commodities, double the fees on buying any oil stocks, pass a new tax on all capped oil wells until the wells are truly proven to be dry

Answer 10

No.  If it does have an impact on oil, it will cause shortages at the pump, and then a new wave of even higher prices down the road.  True capitalism is the most efficient.