Airs – Ian Lance Taylor

Raise the Gas Tax

I see that both McCain and Clinton are suggesting that the gas tax should be abolished for the summer. Obama is resisting that, though he voted in favor of a similar proposal back in 2000 as a state senator.

Dropping the gas tax would be hideously irresponsible. The U.S. must start weaning itself off of oil as fast as possible. This is true both because burning oil increases carbon dioxide in the atmosphere and because relying on oil makes us dependent on countries with large oil reserves, and most of those countries are not our friends.

Dropping the price now will send people the message that when gas gets too expensive, the government will act. That is the exact wrong message. The message we need to send is that gas is going to get more and more expensive, and that people should use less.

If we are concerned about the effects of gas prices on poor people, then we should develop relief specifically for poor people, such as gas stamps by analogy to food stamps. Or better public transportation.

Side note: it’s interesting that this election will almost certainly be the first one to elect a sitting senator since Kennedy in 1960. Traditionally senators do not do well in presidential politics.

Posted

in

by

Ian Lance Taylor

Tags:

Comments

7 responses to “Raise the Gas Tax”

  1. fche Avatar
    fche

    > Dropping the price now will send people the message that when gas
    > gets too expensive, the government will act. That is the exact wrong message.

    Isn’t suggesting that the taxes be *raised now* a somewhat similar message?

    > The message we need to send is that gas is going to get more and more expensive,
    > and that people should use less.

    The market is sending that message in the form of supply & demand.

  2. Ian Lance Taylor Avatar
    Ian Lance Taylor

    I guess I don’t see the similarity in message. I’m suggesting that gas should be more expensive. I’m not reacting to the current price of gas.

    The market is indeed sending the message that gas is going to get more expensive. I’m saying that we should not interfere with that message by removing the gas tax now.

    Here is another way to look at the issue: the price of gas does not include significant externalities. It does not include the cost of adjusting to increased carbon dioxide in the atmosphere. It does not include the cost of occupying countries in the Middle East to ensure a reliable supply of oil. In order to get a proper pricing signal, those costs should be factored into the price of gas. They should not be paid out of the general tax revenue. The easiest way to price in the externalities is via a tax. I’m fine with doing it in other ways too. For example, we could bill oil companies for their effect on the atmosphere. We could bill Saudi Arabia and Kuwait and, eventually, Iraq, for our efforts to keep them as functioning members of the free market in oil. The eventual result on gas prices would be more or less the same.

  3. etbe Avatar
    etbe

    Correct functioning of the capitalist system relies on the majority of the participants having a good knowledge of the factors that affect their investment.

    Someone who buys a car today has no way of predicting what the fuel prices will be in a few years time. In Australia the average age of cars is about 10 years, the minimum common ownership time for a new car is three years and five years is quite common.

    Someone who is buying a car would like to know what the fuel price will be in three or five years, this determines their operating costs as well as the expected sale price.

    I believe that as petrol is a vitally important commodity it’s price should be managed by the state. The government should announce what the price will be for the next five years, the government should have a monopoly on buying petrol from the refineries and importers and selling it to the petrol stations to control the price.

    Then if world oil prices are lower than expected, it’s another source of government revenue (maybe income taxes can be reduced). If world oil prices are higher than expected then it’s less revenue for the government.

    Rumour has it that one of the Scandenavian countries has a very similar system for managing alcohol imports (sorry I don’t have a reference).

  4. ncm Avatar
    ncm

    So, alcohol is a vital commodity in Scandinavia?

    Fuel is a vital strategic commodity. A responsible government would act. In fact, ours should have been acting for decades, to get us independent of oil imports. Solar thermal power has been practical forever, but with oil and coal so heavily subsidized, it couldn’t compete before. Wind is practical now, and getting more cost-effective all the time. (Both benefit from lately improved power transmission methods.) Just arranging for the actual costs of oil, including the military and diplomatic apparatus needed to keep it flowing, and the environmental cost, to be reflected in the price would drive people to alternatives.

  5. Ian Lance Taylor Avatar
    Ian Lance Taylor

    etbe: I agree that stability in gas prices would be beneficial. I’m not sure I agree that it should be a government function. It would be good if people could fix their gas prices in advance by buying futures, as corporations can. This would be basically like signing a lease for your car, as many people do, but having the lease include fuel prices as well. One way to make it work the way it works when renting a car: you can decide in advance that you are going to pay for a full tank of gas at a set price.

    If the government sets the gas price, there are going to be very strong incentives to set it too low.

    In Sweden alcohol is only sold by the government, as is also true in several U.S. states (e.g., New Hampshire). I don’t think this is to provide a stable price, though.

    ncm: I completely agree.

  6. jorendorff Avatar
    jorendorff

    Beer and wine are sold in grocery stores in New Hampshire. The state government has a monopoly only on liquor.

  7. Ian Lance Taylor Avatar
    Ian Lance Taylor

    jorendorff: thanks for the correction. Actually that may be the way it works in Sweden too–I think you can at least buy beer in regular stores.

Leave a Reply