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Page added on July 30, 2007

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Taming Iran and Russia through Europe’s pocketbook

Not only has Bush destroyed Iran’s most formidable enemy and bogged down U.S. troops in a hopeless cause, he also has enriched energy-abundant Iran and Russia by pursuing a war that has dramatically raised energy prices. High crude oil prices make it easier for Iran to build nuclear weapons and for Russia to use energy blackmail to threaten Europe.

But Europe can fight back. By imposing a stiff tax on energy consumption, Europeans would reduce both consumption of energy and its price in world markets, in turn cutting the flow of funds to Russia and Iran.
Because crude oil is priced in U.S. dollars, and the dollar has depreciated against the euro, European consumers have gotten off relatively easy from rising energy prices. So an energy tax roughly equal to the euro’s 33 percent appreciation in recent years would be about right.

Europeans might be forgiven for thinking that the Americans, who pumped up oil prices in the first place with their military misadventure in Iraq, should be the ones who “pump it down” with an energy tax. But with a “Texas oil man” in the White House, it won’t happen. Perhaps after 2008, the politics in America will change in favor of an energy tax, but such a tax is needed now.

Besides, given the strength of environmentalism in Europe, the issue is tailor-made for Europeans to take the lead. Moreover, Europeans do not narrowly equate national security with military spending. They know that confiscating the checkbooks of Russia and Iran would probably make the world a lot safer than building another submarine or aircraft carrier. Indeed, an energy tax would not only effectively counter the argument that Europeans are “free riders” when it comes to defense, but it also would be tantamount to defense leadership.

Still, with the amount of real resources transferred to their governments already high, Europeans might balk at a further increase. That is why the energy tax must be imposed as a tax substitution, with income or payroll taxes simultaneously reduced to keep real resource transfers to government at a constant level. This would increase economic growth as well as strengthen national security.

Critics who worry about the cost of the energy tax have not thought about tax substitutions. They also do not seem to realize that an energy tax is a much cheaper way for Europe to protect itself from Iran and Russia than alternative means, such as a defense buildup.

San Francisco Chronicle

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