Mike: I am afraid I disagree. First : I don't believe any tax measure will reduce oil consumption by 50%, whether transfer tax or not. There is very little elasticity (i.e. demand response to price). An excise tax will be just added to the price of oil paid by the ultimate consumer one way or another. Second: We have already seen the price of all oil jump by over 100% in the last year or so (and by more than four-fold in the last 4 years) and demand had not reduced yet.

The only time there is demand reduction of even a few % points (forget 50% reduction - it just won't happen in the short term) is when the economic activity is reduced. As you suggest, consumer response from improving efficiency, higher mileage cars etc will come only after quite a few years, until then fuel switching to cheaper fuels has been the traditional way oil demand has reduced slightly. I am not sure what the threshold of pain is, but oil demand will react very slowly as we do not have much discretionary driving left and the power sector has already switched out of oil (into coal, nuclear & NatGas).

Lastly, I don't think such a tax (even a transferred tax) can be legislated any sooner than 2010 (if at all possible to get support on this wild idea), because of the lame duck prez, election year politics and time for new prez to start acting. Let us just say we agree to disagree. Anyway, thanks for your comments ..... Anil

"let me say that world nations have always used energy as an easy way to tax their people. Energy taxes are much more in some countries (like the Eurozone) and less in others (like in the US)."

Re: They add more taxes that are used to fund, not only their Hwy & bridges, but to fund it's National Health Care Program..

I think is a Great Idea.. and gaining favor now..

Just read an article that said " a 5% added tax ( about 20 cents more per Gal) could Finance a NHCP for the USA"..and +20 cents now wouldn't even be noticeable..

Thus those who use more gas ( Normally Middle to Upper Income ) pay more and those who use less, pay less..

Makes sense to me..

I brought it up to Sen. Obama a few yrs ago and he also favors the idea..

Actually anything that cost the Richer more and the Poorer Less..

and a Flat  20% Cap Gains tax or Taxed as Ordinary income..

would pay off our debts in just 3 yrs..

and make them both Tax Deductable like we do with Medical Costs ( anything over = to 7.5% of your income is deductable )

A. A NHCP

B. Pay down /off our Budget Debt? and also Increased the value of our Dollar ?

Sounds good to me...!

I saw a PBS show that said " 11 states are in Grid Lock on making up a Annual Budget for it's State and Are facing Shutting down everything.. &  39 states are operating In the Red and Many Dr.'s & Hospitals aren't taking Medicade People anymore and shipping them to County Hospitals.."

Things look pretty bleak for the States being put into a Corner by the Fed of either raise State Sales taxes or  go bankrupt...

Sure, the Fed Cut Taxes, thus forcing Individual states to RAISE theirs..

Nice Republican Con Game of Baith and Switch..

I think a tax on fuels would be good, but immediately when  the tax is created, people must be warned that the tax will increase sharply in the future. Example: the tax on diesel can begin with 10 cents a gallon, but it will increase every three months and in 2 years it will be 3 dollar a gallon.

For the readers that don't like certain guy from  an oil family, this site provides a parody, a satire.

http://www.thespoof.com/news/spoof.cfm?headline=s3i35853 

The hunger of the socialist left for ever higher taxes is boundless.

 Be patient, Obama is coming, you shall have all the taxes you want, and more.  My wife is a nurse and I work in a utility....we shall survive just fine.  But when the taxes flow and the economy collapses....how safe is your job?
 

Cutting taxes, throwing money away in Iraq, failing to lead on energy, and saying "Deficits don't matter" ... all that has wrecked our currency.

I'll take the taxes, energy efficiency, and a currency with value. 

But now is a poor time to do it. 

Anil (and others) is energy demand really that fixed?  I certainly know a number of people who aren't planning to travel the East coast in their mobile homes this year, or are using the SUV less or are taking fewer driving vacations, etc.  As noted in other posts I'm lucky to live on a major train corridor--just did a college reunion in the Philadelphia suburbs this weekend by train which is more efficient, cheaper and more relaxing (except, of course, when the train engine died on the way home.  Amtrak needs independence and capital!) But I would have guessed that it's possible to see a small but real reduction in liesure driving as a result of this mess. Aren't we seeing it already?

Another thought: posters here are, on the whole, positive about using energy taxes for infrastructure--but infrastructure is a mixed bag--wider, better roads means more driving.  I'd like to see bridges fixed, especially since I live in one of the states where they have been known to fall down, but beyond that maybe we should leave the roads alone for a while.  Road building subsidizes car use.

Bush seems to have made us this mess very quickly; it's going to be a lot harder to get us out of it.

DrH

The oil consumption for US for the last 3 years has been flat despite growth in the GNP.  This year it looks like it will be down slightly.

I propose that the price/consumption elasticity of oil is about -2.0% in one year and -20.0% over 10 years.  But no one really knows. Valuethinker, a knowledgeable poster on the other board, thinks it's higher.  I hope he's right.  Those that think there is no elasticity, are essentially advocating that the "law" of supply/demand is obsolete.  The price increase in oil is based on fundamentals not speculation, so were all going to find out that the "law" is still valid. 

The overall world oil consumption is growing about 1%/yr but this is because the oil price is subsidized in China, India, etc.  But they won't want to subsidize it forever.
 

Mike & DrH: Oil Price responds only slightly to short term excursions of oil price. However. there is no question that sustained high oil prices beyond a certain threshold will trigger a response of conservation and make other energy sources viable. The only problem is people thought that trigger was $2/gal gasoline. Prices surpassed that & demand kept growing. However after some trigger point, the demand responds. I do not think annual demand drop can be added (2%/yr x10 years does NOT make it 20% decline). After the first response of fuel substitution etc, there will not be any further response until people change their driving habits.

Here is what happened to US oil demand when we saw a 10 fold spike in the price of oil in the past (from 1973 to 1983). For the first 7-8 years, the prices quadrupled (prices are listed as 2006 dollars, i.e. they are constant 2006 dollar based prices). There was hardly any reduction in demand. However, when people (common folks like us and industry and power plant operators etc) realized that this was not a short term spike and was here to stay, they started investing in technologies and started conserving energy. In the next 5 years, the oil demand declined significantly as utilities invested to  switch to natural gas (which was extremely cheap compared to oil then) and more homes were built with NG firing.

In this round of price increases since 2003/04, we have seen the oil price quadruple yet again, but not seen demand reduce. But as the reality of prices being this high sinks in, people start to change their behaviour. We are already seeing that in some parts. Here in Texas, the light duty truck was a ubiquitous mode of transport. But, guess what, we must have crossed some threshold at $3.50 to $4.0/gal gasoline, I see less and less of those light duty trucks on the road. People are choosing to drive their smaller cars to work and that is a very good thing (reducing those folks commuting gas consumption easily by 25 to 50%). We are seeing aggregate demand drop a little also, so there is that elsticity.

I believe we are very close to a tipping point where this movement to higher efficiency and better mileage cars will be considered "better". When that notion takes hold on a larger scale, we will slowly but surely improve the US average car fuel economy go up and oil demand will stagnate (stagnate because there is natural growth in population, which is offset by the lower demands due to higher efficiency). ... Anil