Tax Policy and Producer Incentives in the Energy Crisis

In some situations, variations of an excise tax are efficient ways to deal with market defects. Variations of an income tax are almost always inefficient, but an investment credit would be merely a negative excise tax and would fall into the potentially useful category. This advantage would result if the investment credit were made refundable and subtracted from the taxpayer's basis for depreciation. The following are approaches in the use of tax incentives: 1. the crude oil equalization tax, 2. variations of the crude oil equalization tax (COET), 3. classified user taxes and credits, and 4. research and development-oriented tax incentives. If Congress wants to change relative prices and, therefore, economic incentives, the most obvious measure is the excise tax. President Carter's plan, with the specific excise tax on crude oil, does not go far enough. All of the approaches have good and bad points, but the income tax incentive is a failure.