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An oil tax could be one of the least painful ways to trim the deficit

Original story at washingtonpost.com• 2 mentions • 1 year ago

washingtonpost.com 1 year ago

Like it or hate it, policymakers in Washington are still obsessed with the deficit. That’s why think tanks keep churning out clever plans to cut spending and raise taxes.And here’s a new paper from the Council on Foreign Relations offering an interesting twist on the theme. Using economic modeling, Michael Levi and Citgroup’s Daniel Ahn suggest that a tax on oil consumption could be one of the least harmful ways to trim the budget deficit.How do they figure? Levi and Ahn first assume that Congress will enact a big deficit-reduction package over the next 10 years that includes about $3 in spending cuts for every $1 in corporate and income tax hikes. That would be fairly similar to the much-discussed Simpson-Bowles proposal.Next, the authors model what would happen if Congress scrapped some of those tax hikes and spending cuts and instead replaced them with a tax on oil consumption. This would be fairly straightforward to implement — it would involve raising existing taxes on gasoline, diesel fuel, and jet fuel. And let’s assume the tax comes to about $50 per barrel of crude oil, or about $1.20 per gallon of gasoline.After running their economic model, Levi and Ahn found that using the oil tax to fend off some of the spending cuts and income tax hikes could be beneficial to the U.S. economy. Here’s the key graph:
 
 
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What they're saying:

06 Feb
Jonathan Fahey @JonathanFahey
RT @levi_m: An oil tax could be one of the least painful ways to trim the deficit http://t.co/0KO1YXpG @BradPlumer post on Ahn/Levi study.
06 Feb
David Roberts @drgrist
RT @levi_m: An oil tax could be one of the least painful ways to trim the deficit http://t.co/7nwXZt0l -- nice @BradPlumer post.