Your friend isn't "really smart". The argument that the Income Tax is unconstutional is an absurd one. The Seventh Circuit Court of Appeals stated that people are attracted to the "tax protestor movement's illusory claim that there is no legal requirement to pay federal income tax."
The court called the tax protester arguments "wholly defective and unsuccessful."[12] Ideas associated with the tax protester movement have been forwarded under different names over time. These ideas have been put forth, for example, in the broader Christian Patriot and Posse Comitatus movements, which generally assert that the Constitution has been usurped by the federal government.
Tax protester (United States) - Wikipedia, the free encyclopedia
Either way, it's a silly position to take. Given what I've heard from Ron Paul, he doesn't have a clue about what the Constitution says either. I can see where he'd appeal to certain types that have issues with authority.
If you're accurately stating your friend's arguments, he's incorrect there as well. The "free market" wouldn't result in lower prices than we're paying. What *might* happen is that even more of the oil would be shipped to India and China.... a much more likely scenario.
The issue of subsidies to oil companies and tax policy surrounding them, including the export of domestic oil supplies is a separate issue.