Btu tax as a revenue option: Its impact on agriculture in the USA

Abstract

The paper investigates the impact of the imposition of a broadly based energy tax on the US economy in general and the agricultural sectors in particular. The analytical approach used in the analysis consisted of a general equilibrium model composed of 12 producing sectors, 13 consuming sectors, six household categories, classified by income, and the government. The effects of a 10 cents per million Btu tax on energy on prices and quantities are examined. The results are revealing. For example, a 10 cents per million Btu tax on energy imposed at the point of production would result in lower output by the producing sectors (by about $9.154 billion), an increase in the consumption of goods and services (by about $20.292 billion), and a reduction in welfare (by about $4.30 billion). The government would realize an increase in revenue of about $6.356 billion. If the Btu tax were imposed at the point of consumption, there would be lower output by the producing sectors (by about $5.88 billion), an expansion in the consumption of goods and services (by about $19.830 billion), and a reduction in welfare (by about $7.066 billion). The government would realize an increase in revenue of $6.688 billion. The agricultural sectors would be minimally impacted. For example, if a 10 cents per million Btu tax were imposed at the point of production, output in the program crops sector would rise (by $8.3 million), output in the livestock sector would decline (by $83 million), output in the all-other-agriculture-commodities sector would be reduced (by $118 million), and output in the forestry sector would rise (by $34.7 million). If the Btu tax were imposed at the point of consumption, output in the program crops sector would fall (by $38 million), output in the livestock sector would decline (by $42 million), output in the all other agriculture commodities sector would be reduced (by $94 million), and output in the forestry sector would rise (by $221 million).