Sunday, October 12, 2008

Why taxing resources makes them cheaper (take II).

Authors note: This is a work in progress, please contact me or post in the comments with any feedback or criticism. I value your input!

I am convinced that taxing oil, timber, minerals, and land and then paying a dividend from the proceeds to the citizens of the country can solve many of our social and economic ills. In the post I will use the example of taxing oil in an attempt to explain why.


  1. Production cost: cost per barrel of oil including processing, searching for new sources, developing new wells and some profits for shareholders.
  2. Current market price point: The current supply/demand balance in today's market.
  3. Sustainable market price: The price where consumption falls to a sustainable level. I.e. oil would be available for some set time, perhaps 500 years.
  4. Unnatural profits: profits that are unnatural in the sense that an ideal market would not support them.
  5. Tax to citizen dividend or public profits: profits returned to citizens as an annual dividend payment.


In capitalist economies poverty seems always to accompany wealth. This is not a coincidence. There are two sources of wealth, first are the fruits of creativity, hard work and perseverance, second is the control of natural resources such as land, oil and minerals.

The underlying problem with capitalism is that as commonly implemented, this distinction is not made or accounted for. Even when an individuals initial wealth is made though creativity and hard work if they then use that wealth to gain control of resources poverty will be created.

  • A percentage based income tax is a partial but poor tool to compensate for the labor vs resources generation of wealth.
  • Using the proceeds of the tax on resources to pay for government (as espoused by Henry George) is a viable solution but I think that the idea of paying a dividend to all citizens is politically more realistic.
  • There is some evidence that oil is being generated deep in the earths mantle. Setting a 500 year horizon for sustainable harvesting of oil should provide for adequate time to adjust consumption patterns to supply. Remember that the horizon is a moving one. As more oil deposits are discovered the consumption rate could be adjusted.
  • A similar tax needs to be applied to other energy related mineral deposits such as coal and uranium. Externalities such as disposal costs and green house impact would ideally be built into the tax.
  • The best possible scenario would be where all net oil importing countries agree on the tax levels. This could distribute the wealth and power of controlling resources such as oil to all people of the earth.