The Inverse-Floater Gasoline Tax

How to structure a gas tax? You could make it a flat X cents per gallon; alternatively (and this is essentially what a cap-and-trade system does, too) you could make it Y%, with the tax increasing with the price of gasoline.

Today, Jim Surowiecki comes up with a third option, where the tax decreases when the price of gasoline goes up:

Rather than leave so much of our fate to chance, we’d be better off doing what politicians always say they want to do: lessen the U.S. economy’s dependence on oil. One step toward that would be to phase in a gas tax designed to smooth out oil’s spikes and plunges by keeping the price of gasoline fixed (the tax would rise when the price of gas fell, and vice versa).

Surowiecki makes a strong case that consumer behavior, when it comes to reducing gasoline consumption, only really changes when there’s a spike in gas prices. As a result, his proposal would seem designed to have the least possible effect on gasoline consumption, and on our dependence on oil. Sure, it’s a sensible way of raising government revenues and reducing the fiscal deficit.

Either you want to effect consumer behavior and reduce gasoline consumption — in which case you actually welcome price spikes. Or else you want to smooth out price spikes, in which case you slowly boil the frog (to use one of the stupidest metaphors ever) and keep consumption high. But you can’t have it both ways. Which is it to be, Jim?

Comments

[greg weitzner:]

I think Jim has a great idea. Even though people respond to price spikes emotionally and psychologically, it does not mean they will go out and buy a hybrid immediately. This type of tax would make gas prices permanently higher making more fuel efficient cars viable and helps ease the consumer's woes of constant price fluctuations. It would give a more consistent price which would allow consumers to make the decision to switch to more consistent prices without hoping that oil prices plummet back down (as they did last summer). It would also provide much needed revenue for the government which could package this tax with a cut in payroll taxes if it is not politically palatable on its own.

Jun 15 12:33 PM

[Poor Texan:]

It sounds like just another price control mechanism. But then this govenment does want to control all wages and prices just as Nixon did in the seventies.

Jun 15 12:57 PM

[speeddaimon:]

Jim's idea does seem to be an appropriate one. I was thinking that if the government pegged the price per gallon of gasoline at $4.00/gal (using the midwest as the base rate and adjusting for cost of living) let the stations selling the gasoline keep a nickel per gallon, and taking the rest as tax, this would serve three purposes. 1. Encourage the modification of consumer behaviour. 2. Encourage alternative energy sources and 3. Help the government pay off some of the massive debt they've continued accumulating.

Jun 15 02:08 PM

[Nathaniel C:]

I have a better idea than taxing americans even more. Have the US sell 20 billion in oil from the SPR and use the proceeds to short oil futures and gasoline futures and supress the price. This would help the US economy recover and increase consumer spending. Sure better than another illegal tax.

Jun 15 05:06 PM

[Tony Petroski:]

The social engineers never stop tweaking plans to make the public do the politically-correct thing as opposed to getting out of the way of free men living free lives and trading in free markets (which very effectively regulate gasoline usage by the price rising and falling depending on supply and demand). Since the "correct" price is $5.00-a-gallon or so to match the price in Europe where they have all those neat choo-choo trains and little sustainable villages, then I assume that will be the price to make the Americans jump through the hoops the eurosocialists want them to.

Go ahead and make that case, and skip all the baloney about wanting to be less energy dependent--the eurosocialist (which includes legions of Americans) don't give a hoot about American energy independence. They also don't give a rat's behind about cooling the planet as they must realize by now that sunspot activity is doing that much faster than any cap-and-tax scheme could do.

Jun 15 05:36 PM

[Vuke:]

Right on Tony. The world will be a vastly better place when the last social engineer is strangled with the entrails of the last financial engineer.

It's amazing to visit places where people are left to do their own thing, keep their own money and, generally, remain unaware of the state. Even if poor, they're usually happy and far less stressed.

Jun 15 06:33 PM

[conceptwizard:]

They are learning lessons from their closest border buddy Canada. The Federal 6% GST or Goods and Services Tax on pretty well everything including toilet paper, which is not a necessity according to them, is taxed including Gas, alcohol (a 40 oz bottle is $35.00 , cigarettes pack of twenty $10, a lot of grocery items etc. Then on top of that you have provincial sales tax of 8% in some provinces. This is topped with income tax rates of 37-48%. Taxes are paid on every new and used car each time it changes hands of 13%. An average Canadian pays taxes until June 12 each year, then they can keep the rest to pay household expenses with. This is an overall 50% of incomes per household. The average household incomes and standards of living is about the same as th USA, but until this year they ran a balanced budget.

That is what it will take and more to get the USA moving again fiscally. Our politiciansknow this Our lifestyles will change believe me.

Jun 15 07:14 PM

[derryl:]

An inverse gas tax that keeps the price at $4 per gallon will create a big market for all the fuel efficient small cars that Obama Motors will be pumping out. Even with small cars, $4 per gallon gas crowds out a lot of discretionary spending, which means buying less stuff, which means a declining material standard of living. And it's cheaper to keep driving your old gas guzzler until it's worn out than replacing it with a new fuel efficient car, so it will be years before the existing fleet is replaced.

I believe peak oil is true so I think $4 gas is going to happen anyway. It's probably not a bad idea to start getting used to it. Peak oil doesn't mean we run out of oil. It means we run out of oil that is easy and cheap to produce. Peak oil means the era of cheap oil is over and the era of permanently more expensive oil is beginning. That means transportation will be more expensive, as well as everything that is transported, which in our economy is 'everything', period.

Compared to North America, European cities are old and were built long before the automobile became a fact of life. Modern North America was largely built during the automobile's golden age, post WWII. So we are far more car-dependent than Europe and expensive gas hurts us more. Europe was built for walking and horses and trains. North America was built for cars. So lecturing us that we should be more like Europeans ignores the differences in our infrastructures and our related transportation cultures. For us, getting used to expensive oil is going to be a big painful adjustment.

Jun 15 11:02 PM

[speeddaimon:]

A few clarifications on this comment. After prices naturally went past $4, the tax would no longer apply. The reasoning behind the entire idea is to get Americans used to high gas prices. Those of you that complain that we need to let gas prices do what they do, that this is an illegal tax, blah, blah, blah, try looking at the long term picture. As demand increases across the world (inevitable) supply will grow, but it won't grow fast enough to match the demand meaning oil prices will rise dramatically (coupled with the devaluation of the dollar). Which means we need to start acting now. We need to modify consumer behaviour now, we need to encourage alternative energy sources now.

As of right now, many alternative energy programs are just now becoming economically viable again. We need to end this roller coaster and give those attempting to develop new technologies a constant that they can count on.

Furthermore, we need to take away the pricing power that OPEC currently enjoys. By controlling the price on our end we can remove some of the power that they have.

If we do enact this tax, yes there will be pain in the present. But it will condition people for the hike in oil prices down the road, and maybe it will finally grant us the power to tell the Saudis to shove their oil and that we will not be bowing to their demands any longer because frankly, we don't need them. Think of oil as national security and imagine how secure we could be if we no longer had to pander to countries that wished us harm.


On Jun 15 02:08 PM speeddaimon wrote:

> Jim's idea does seem to be an appropriate one. I was thinking that
> if the government pegged the price per gallon of gasoline at $4.00/gal
> (using the midwest as the base rate and adjusting for cost of living)
> let the stations selling the gasoline keep a nickel per gallon, and
> taking the rest as tax, this would serve three purposes. 1. Encourage
> the modification of consumer behaviour. 2. Encourage alternative
> energy sources and 3. Help the government pay off some of the massive
> debt they've continued accumulating.

Jun 16 10:49 AM

[Buckoux:]

Quote:" Europe was built for walking and horses and trains. North America was built for cars. So lecturing us that we should be more like Europeans ignores the differences in our infrastructures and our related transportation cultures.".....comment by derryl.

Yes! The Potemkin village constructed by the enviro-left regarding Europe is an example of the lefts ignorance and not the Europeans wisdom. The horse had more to do with the width of Europe's roads and the distances between villages, town and cities than did any professor from Heidelberg University. As well, World War II and the crash construction of oil refineries to produce huge quantities of 110 Octane aviation/military fuel, had more to do with the cheap, hi-octane, gas of the 1950's - and subsequent gas wars - than did Americans "lust for powerful cars".

You're right about the wrong headedness of the Lefts compulsion to compel America to model itself after Europe, just as it would be to compel Europe to be like America.

Jun 16 11:02 AM

[Buckoux:]

Quote: "We need to modify consumer behavior now, we need to encourage alternative energy sources now......As of right now, many alternative energy programs are just now becoming economically viable again. Comment by speeddaimon.

Yesssssssss (hiss). We need to "modify behavior", NOW! Alternative energy programs are "just" ( do you mean recently or adequately?) now becoming economically viable....AGAIN? What's changed? The problems with alternative energy sources are the cost of engineering, construction, recovery, storage and degree of utility. No alternative energy source, at this time or in the near future, even approaches the utility of gasoline! Actually gasoline is pretty good stuff, it's just that the Arabs have most it.

Now, I don't sweat the small stuff, "speed". I can care for and ride horses for transportation. I know about cattle and the raising of my own food. I can easily return to the 19th. Century and not be put off by it. But, will you, and others like you, who ignorantly wish for 1984 be able to survive?

Jun 16 11:24 AM

[speeddaimon:]

Great, because you can survive in an oil free environment, you think that its a good plan to ignore external pressures on our country. You figure that maybe you and your 26 automatic weapons out in the mountains of Montana can resist the change of control from Americans to foreign interests.

As far as what has changed, the price of oil has. When its cheap, no one cares about funding alternative energy sources because there's no money in it. And you're right, currently there are no successors to oil, but my previous comment attempts to demonstrate why we need to find one that decreases our dependence on foreign interests.

Essentially, your comments demonstrate the short term thinking and singular self interest that has personified America's energy policies for the last 40+ years. I notice that you make no response to the fact that allowing Saudi Arabia, Russia, OPEC and other energy exporters compromises our ability to defend ourselves and our way of life. But hey, as long as you get to keep your guns and live in a mud hut in the middle of Montana living off of all the cans of beans and ammunition you've no doubt been stockpiling, screw the rest of the country right?


On Jun 16 11:24 AM Buckoux wrote:

> Quote: "We need to modify consumer behavior now, we need to encourage
> alternative energy sources now......As of right now, many alternative
> energy programs are just now becoming economically viable again.
> Comment by speeddaimon.
>
> Yesssssssss (hiss). We need to "modify behavior", NOW! Alternative
> energy programs are "just" ( do you mean recently or adequately?)
> now becoming economically viable....AGAIN? What's changed? The problems
> with alternative energy sources are the cost of engineering, construction,
> recovery, storage and degree of utility. No alternative energy source,
> at this time or in the near future, even approaches the utility of
> gasoline! Actually gasoline is pretty good stuff, it's just that
> the Arabs have most it.
>
> Now, I don't sweat the small stuff, "speed". I can care for and ride
> horses for transportation. I know about cattle and the raising of
> my own food. I can easily return to the 19th. Century and not be
> put off by it. But, will you, and others like you, who ignorantly
> wish for 1984 be able to survive?

Jun 16 11:50 AM

[jack kreg:]

The American economy needs low cost fuels not higher taxation giving corrupt politicians more $$ to buy election votes with.
Open all reasonable drilling sites in the USA for natural gas production, oil too, and begin a transition to NG fueled transportation system.
That way when global oil prices begin to rise, USA consuption of foreign oil will drop, perhaps so will global oil prices, USA is currently the hungry hog in the global oil market. Lets end that by using NG in our transportation vehicles, your car, buses, trucks.
America could cut its foreign oil consuption by 50% in 5 or 10 years, soley by use of NG in half of our transportation vehicles.
Let Americans keep there hard earned $$, dont raise another Obama tax just to give corrupt politicians more $$ to buy election votes with.
Felix always writes the wrong story, try a new look, not the same old tax and spend liberal/socialist politics.

Jun 16 12:02 PM

[speeddaimon:]

I'm all for switching to an abundant, American fuel source. Good point Jack.


On Jun 16 12:02 PM jack kreg wrote:

> The American economy needs low cost fuels not higher taxation giving
> corrupt politicians more $$ to buy election votes with.
> Open all reasonable drilling sites in the USA for natural gas production,
> oil too, and begin a transition to NG fueled transportation system.
>
> That way when global oil prices begin to rise, USA consuption of
> foreign oil will drop, perhaps so will global oil prices, USA is
> currently the hungry hog in the global oil market. Lets end that
> by using NG in our transportation vehicles, your car, buses, trucks.
>
> America could cut its foreign oil consuption by 50% in 5 or 10 years,
> soley by use of NG in half of our transportation vehicles.
> Let Americans keep there hard earned $$, dont raise another Obama
> tax just to give corrupt politicians more $$ to buy election votes
> with.
> Felix always writes the wrong story, try a new look, not the same
> old tax and spend liberal/socialist politics.

Jun 16 01:26 PM

[Danny Newton:]

The current gas tax, both federal and state responds either poorly or not at all to inflation. The federal tax was last changed in 1997. I live in a state that has not changed the state tax since 1987. With an inflation calculator, I have determined that gas taxes have never been lower since they were invented if they are corrected for inflation using the CPI.

The greatest fault of the gas tax is that they have morphed from a user tax to a non-user tax. Even during the depression, the gas tax was thought to be fair because it fell upon those who were using the roads. The theory that the more you use, the more you pay appeals to something basic in people. The problem is that we have also morphed into a people that sees nothing wrong with the non user paying their "fair share."

About 15.5% of the federal gas tax goes to transit while only 4.8% in 2006 reported using mass transit as a way to get to work. Transit is funded from the non-user because it gets additional money from the federal general fund. Local taxes based on property and sales are also used to fund transit. Transit ridership actually dropped in 2002 and 2003.

As time marched on, the gas tax also became more and more of a non-user tax. First the legislatures of many states, believing in a farm to market philosophy of distribution, caused local state aid from the gas tax to be disproportionaly redistributed in funding formulas that moved money from efficient urban users to inefficient rural users. If your state uses a policy that is based on a formula of county or city boundary and population you will find that people who live in rural areas get more of the gas tax. The formula worked well until states like Tennessee became mostly urban, with 5 out of 8 living in the cities.

In the era of the Interstate, the non-user pays was also the way this system got built. The system of distribution was based on area and population and many states became long term chronic donor states. The system was changed only recently to a more performance based system depending on the system you have and how many miles per year driven but there are still a few states that are donor states in both the old and the reformed models.

The non-user pays mentality is also visited upon the populace by local legislatures earmarking road projects. This problem has its origins in the construction of the Interstate System when federal members of the Commerce Department were dispatched to do dog an pony shows at Chambers of Commerce to tell everyone how great the Interstate was even if it did kill the core of your city and even if the exits were not as convenient as you would like. This economic development aspect of highways was a lesson that was mislearned all over the country. Instead of learning why the Interstate provided for more productivity, the great unwashed only understood that pavement always works.

Earmarking at the federal level is equally disastrous because there are no cost accounting rules or even rules of thumb that divide the good projects from the bad projects. The legislature may try to bring wealth by giving everyone a four lane but the facts are that not every mountain, bog and forest can accommodate a four lane at the same base cost as a nice flat spot above the flood plain. We may try to give everyone the right to live anywhere and to go anywhere on a nice safe road and in the shortest time possible but the fact is that the people on the flat land or the non-users, will be paying for the people who live in difficult terrain. We can not afford that right.

The Federal Government, in the mid Sixties, started a program of Appalachian Highways to try and serve these areas of difficult terrain and quickly ran out of money. It is still not finished and most of the things that they did finish were the less expensive sections. Also the program grew so that Appalachia was any county that was underperforming financially even if it was in Mississippi.

The final blow to the user based tax was the federal changes in the law that forced states to spend gas tax money on non-road expenditires. Bike trails, pedestrial bridges, museums, sidewalks and a difficult to explain ctegory called safe routes to school are just a few of them. A state that does not use set asides in these categories loses the money that they put into the system. States that have Keynesian concepts of economics simply can not do that. They obcess on impact and which side of their boundry the money is coming or going.

Earmarked projects at the federal level are often projects that even the states see as poison but the congress uses coercion to get them built. In a little county here in my state the state plans to build an earmarked project that will cost $6 million per mile in 2009 dollars but will only get about a million dollars in an equivalent income flow from the gas tax. This 5 million dollar per mile loss is brought to you by a congressman that you can not vote for or against because he is out of your district. Once again the non-user in the urban areas, mostly will have to make up the cost of this road. According to the highway engineer in the public meeting there will be 4000 to 7000 vehicles per day on this new four lane road with an Interstate cross section. It is designed to attract the next factory, not convey people. There are at least a hundred of these roads being built in the next three years in my state alone.

This system hasbeen tweaked so much, it is probably unfixable without a revolution.

Jun 16 07:50 PM