The Gas Tax

Gerald Tarrant · Post by **Gerald Tarrant** » 2006-10-10 11:49pm

There have been some discussions on peak oil and the total energy consumption. The gas tax is called a Pigovian Tax

A Pigovian tax (also spelled Pigouvian tax) is a tax levied to correct the negative externalities of a market activity.

The problem discussed in the previous threads is too much consumption, and no planning for the future. The solution to over consumption, is to increase the price (with a tax) so that hopefully consumers alter their long term energy consumption to more fully reflect diminishing reserves. That doesn't seem like the kind of a thing a Libertarian normally says, but since I worship at the alter of Alan and the following came up:

Mr. Greenspan was hardly a proponent of raising taxes on energy to encourage conservation, a policy prescription generally associated with the politicians and economists of the left.

Until now. In late September, as he spoke to a group of business executives in Massachusetts, a question was posed as to whether he’d like to see an increase in the federal gasoline tax, which has stood at 18.4 cents a gallon since 1993. “Yes, I would,” Mr. Greenspan responded with atypical clarity. “That’s the way to get consumption down. It’s a national security issue.”

New York Times

Greg Mankiw used to be an economic policy adviser for President Bush, he's also started something he calls the Pigou club, both he and Paul Krugman and Al Gore happen to be fans of the Gas tax. Krugman has criticized about everything Bush has ever done. If both Bush's former economic adviser can agree with Al Gore there may be something to higher Federal rates.

This isn't going to solve energy problems, but hopefully it will provide a kick in the direction of alternate energy.

So the questions: You play the role of a US policy maker (The Decider) Would you implement a 50 cent increase in the gas tax to curb oil consumption? What are the downsides? Would this tax be regressive? What would you do with the money?

ThatGuyFromThatPlace · Post by **ThatGuyFromThatPlace** » 2006-10-11 12:52am

on anything else I'd agree with Greenspan, but gas prices have been going up since the teens and consumption has only increased. Even in the seventies with ridiculous levels of infaltion on gas prices consumption managed to go up, levying a tax isn't going to curb Gas consumption unless you levy it against the gas companies themselves (yeah, becasue thats going to happen)

Seggybop · Post by **Seggybop** » 2006-10-11 01:23am

It would reduce consumption if it were high enough. The problem is that the idiot population would hate whoever implemented it and eagerly vote in anyone who would repeal it.

Drooling Iguana · Post by **Drooling Iguana** » 2006-10-11 01:28am

The problem is that in many areas of the US there really isn't an alternative to running a car. If this tax coincided with (and helped fund) a massive revamp of public transportation systems across the country it might do some good, otherwise people are still going to use the same amount of gas and just pay more for it.

Natorgator · Post by **Natorgator** » 2006-10-11 01:35am

I think there should definitely be a higher gas tax if you own a big useless SUV. Work trucks and eighteen wheelers could be exempt.

SeeingRed · Post by **SeeingRed** » 2006-10-11 01:38am

Yes, I would impose a tax, and use the additional revenue to fund research into alternatives and development of better mass-transit infrastructure in major cities. Yes, it would be regressive most likely (although not as much so as a flat tax, as richer people probably tend to use more gasoline). The only other major downside I can think of is that it might not decrease consumption all that much, as recent studies have shown that demand for gasoline is fairly inelastic.

We'd have to see, though; certainly it will reduce consumption somewhat at least, and we would have additional revenue for research.

However, I might add that currently there is so much money being wasted in the U.S. budget (both pure pork-class waste as well as idiotic ideas like the "coal research initiative"), that if Congress was actually willing to make some cuts, they'd probably be able to scrounge together more than enough money for us all to be driving alternative fueled cars within the decade.

Too bad there are too many people that have an interest in maintaining the status quo.

Also, I think electric cars are the ultimate solution, and these types of measures can only be viewed as temporary solutions. It's much easier to mass-produce clean energy and then distribute it to cars via wires than it is to store the energy in an intermediate form and release the energy locally.

Cincinnatus · Post by **Cincinnatus** » 2006-10-11 01:53am

SeeingRed wrote:Yes, I would impose a tax, and use the additional revenue to fund research into alternatives and development of better mass-transit infrastructure in major cities. Yes, it would be regressive most likely (although not as much so as a flat tax, as richer people probably tend to use more gasoline).

Flat taxes by definition are proportional, not regressive. A sales tax on gasoline would be regressive even if rich people used more gas (which I'm not sure is true), since it would take up a much greater percentage of a poor person's income.

If a rich person made $200,000 a year and paid $10,000 in gas taxes (5% of his income), he would feel it less than a poor person who made $40,000 a year who paid $5,000 dollars in gas taxes (12.5% of his income.)

A better way to reduce consumption would to put fuel efficiency standards on the automotive industry.

SeeingRed · Post by **SeeingRed** » 2006-10-11 02:06am

Cincinnatus wrote:Flat taxes by definition are proportional, not regressive. A sales tax on gasoline would be regressive even if rich people used more gas (which I'm not sure is true), since it would take up a much greater percentage of a poor person's income.

If a rich person made $200,000 a year and paid $10,000 in gas taxes (5% of his income), he would feel it less than a poor person who made $40,000 a year who paid $5,000 dollars in gas taxes (12.5% of his income.)

My apologies, I meant "fixed tax" not "flat tax".

A gas tax would certainly still be regressive; all I said was that it would be less so than a *fixed tax. To use your analogy, a rich person making $200,000/yr and paying $10,000 (5%) in gas tax would certainly feel it less than the poor person making $40k and paying $5k, but said poor person would in turn feel the gas tax less than he would a true fixed tax where he also payed $10k/yr (or 25% of his income).

And yes, agreed, fuel efficiency standards are a much better way to (temporarily) reduce consumptions. It's unfortunate that other entities (the E.U., certain Asian nations) are way ahead of the U.S. in this regard, and that every attempt to impose such standards in the U.S. are fought tooth and nail until they're finally repealed or softened.

I'd like to ask another question to those reading this thread: if it were possible, would it be desirable to impose some sort of "sliding" tax on automobiles that scaled corresponding to the fuel economy of your vehicle (i.e., the higher your fuel economy, the lower your tax), or corresponding to the class of vehicle you own (i.e., if you own a Civic, you pay next to nothing, but if you own an Excursion, you pay a lot)? If so, how could such a measure be implemented?

Gerald Tarrant · Post by **Gerald Tarrant** » 2006-10-11 02:23am

Cincinnatus wrote:A better way to reduce consumption would to put fuel efficiency standards on the automotive industry.

Actually there are already targets set CAFE defines several targets to be met. Although the article notes several deficiencies with CAFE

Calculation

For the purposes of CAFE, a manufacturer's car output is divided into a domestic fleet (vehicles with more than 75% U.S., Canadian or (after the passage of NAFTA) Mexican content) and a foreign fleet (everything else). Each of these fleets must separately meet the requirements. This requirement was designed to benefit the American automobile industry, but it is regarded as having little effect and the possibility of removing the two fleet rule is being considered. The two fleet rule for light trucks was removed in 1996.

Fuel economy calculation for alternative fuel vehicles multiplies the actual fuel used by a "Fuel Content" Factor of 0.15 [1] as an incentive to develop alternative fuel vehicles[2]. This makes alternative fuel vehicles appear substantially more fuel efficient in CAFE calculations.

Manufacturers are also allowed to earn CAFE "credits" in any year they exceed CAFE requirements, which they may use to offset deficiencies in other years. CAFE credits can be applied to the three years previous or three years subsequent to the year in which they are earned. The reason for this requirement is so that manufacturers are not penalized for occasionally (due to market conditions, for example) failing the targets, but only for persistent failure to meet them.

Current standards

Cars and light trucks are considered separately for CAFE and are held to different standards. As of early 2004, the average for cars must exceed 27.5 mpg and the light truck average must exceed 20.7 mpg. Trucks under 8500 lb must average 22.5 mpg in 2008, 23.1 mpg in 2009, and 23.5 mpg in 2010. After this, new rules set varying targets based on truck size and class.

Overall fuel economy for cars and light trucks in the U.S. market reached its highest level in 1987, when manufacturers managed 22.1 mpg (10.6 L/100 km). The average in 2004 was 20.8 mpg. In that time, vehicles increased in size from an average of 3,220 pounds to 4,066 lb (1,461 kg to 1,844 kg).

A number of manufacturers choose to pay CAFE penalties rather than attempt to comply with the regulations. As of model year 2002, BMW, DaimlerChrysler (import fleet only), Ferarri, Lotus and Porsche failed the automobile CAFE requirement, while BMW and Volkswagen failed to meet the light truck requirement.

IIRC SUV's are covered under the light truck standards which is why they can have such horrible gas mileage. I should note that I don't mean to straw-man your idea, I'm assuming you could draw up a set of standards that works (CAFE doesn't appear to work well at all)

I don't think that Fuel Efficiency Standards (on their own) are the best option for cutting back on gasoline consumption. Fuel efficiency standards don't provide incentives for drivers to change their habits. Higher gas prices encourage people to change driving habits, meaning less cars are on the road. Higher fuel efficiency standards just mean all the cars waste less gas.

I have to agree though, that the gas tax is regressive. Maybe there should be some sort of rebate for lower income drivers.

ThatGuyFromThatPlace · Post by **ThatGuyFromThatPlace** » 2006-10-11 02:55am

a set of standards that work?

All vehicles must have greater than 25 MPG, no exceptions, deadline is five years.
It's certainly possible with recent advances in hybrid-electric drive trains, plug in hybrids and various energy sotrage media. The problem is that the auto companies will probably toss out something about how ridiculous it is to judge trucks and cars under the same standards and the idiot populace will agree.

aerius · Post by **aerius** » 2006-10-12 05:54pm

ThatGuyFromThatPlace wrote:a set of standards that work?

All vehicles must have greater than 25 MPG, no exceptions, deadline is five years.

Not doing nearly enough, CAFE standards for cars is already above that so it would only affect pickups and SUVs. You want to make a difference? Put the standard up to the 40mpg range, shut down all the credit transfer loopholes and get serious with the fines. Half-ass measures ain't gonna cut it, a few percent here & there isn't going to do much, think factors, in one shot, whack a full 1/3 to 1/2 off fuel consumption for new vehicles. It's already well within our technology base, we just have to accept smaller & slower cars. The average family car doesn't have to weigh 2 tons and have 300+ horsepower. And having entry level econocars like the Honda Civic which are now bigger than the Honda Accords (a family car) of 15-20 years ago is pretty ridiculous.

Post by **Darth Wong** » 2006-10-12 06:24pm

The problem here is that American automakers have not focused much effort on high fuel-economy cars, so strict fuel-economy standards will tend to put even more pressure on a domestic auto industry which is already reeling. That's just another reason why the idea won't fly in the US.

Molyneux · Post by **Molyneux** » 2006-10-12 06:48pm

Darth Wong wrote:The problem here is that American automakers have not focused much effort on high fuel-economy cars, so strict fuel-economy standards will tend to put even more pressure on a domestic auto industry which is already reeling. That's just another reason why the idea won't fly in the US.

Does anyone even still buy American-made cars?
We have two Accords and a Camry; the only American car I can think of near my house is the Jeep SUV around the corner.

Gerald Tarrant · Post by **Gerald Tarrant** » 2006-10-12 07:05pm

A related point question is standards vs. a price increase.

Consider a hypothetical: some commuter has a horrible gas guzzling tank. Said commuter is tired of his gas bill $2037 ( from the previous report).

* Based on 15000 annual miles and a fuel price of 2.31 per gallon

And so switcheds for the Prius. The new bill is now $631 said commuter ccould now drive 45000 miles for the same price as 15,000 in the Hummer. The financial penalties of driving long distance have gone down, so mileage per year per driver may go up. I have no doubt that higher fuel efficiency standards would (like the 40 mpg) would have a dramatic reduction in fuel used, but one of the disadvantages is all the cars on the road that were manufactured with more lenient or non-existent standards.

Shoot, I had been intending to compare this to what would happen if the Federal Gov. just slapped a .50 cent tax on gas. I just ran some numbers and it looks like a price increase isn't that dramatic for the Hummer guy. The gov report bases everything off $2.31/gallon so with the prescribed $.50 gas tax that would be

$2.81 * 15000 (miles per year) / 17 mpg(average) = $2479.42 compared to $2037 orignally.

I probably ought to quantify dramatic, but If he's already shelling out $2000 a year to own his status symbol what's an extra $400 here or there.

I'm now convinced that a gas tax wouldn't be enough, higher fuel efficiency standards are needed. Darn it looks like the church of Greenspan takes a knock, what religions besides Libertarianism should I look at?

Gerald Tarrant · Post by **Gerald Tarrant** » 2006-10-12 07:11pm

I wish I'd seen this before I posted

The average fuel efficiency of European cars is over 40 mpg, of Japanese cars 45mpg, and North American cars 20.4 mpg.

from Wiki

Kind of damning; good job Free Market!

Prozac the Robert · Post by **Prozac the Robert** » 2006-10-13 04:24am

SeeingRed wrote: I'd like to ask another question to those reading this thread: if it were possible, would it be desirable to impose some sort of "sliding" tax on automobiles that scaled corresponding to the fuel economy of your vehicle (i.e., the higher your fuel economy, the lower your tax), or corresponding to the class of vehicle you own (i.e., if you own a Civic, you pay next to nothing, but if you own an Excursion, you pay a lot)? If so, how could such a measure be implemented?

Pretty sure we do something like that. There are something like 5 bands, and more economical vehicles are in the cheaper ones.

Post by **Simplicius** » 2006-10-13 06:59am

SeeingRed wrote:I'd like to ask another question to those reading this thread: if it were possible, would it be desirable to impose some sort of "sliding" tax on automobiles that scaled corresponding to the fuel economy of your vehicle (i.e., the higher your fuel economy, the lower your tax), or corresponding to the class of vehicle you own (i.e., if you own a Civic, you pay next to nothing, but if you own an Excursion, you pay a lot)? If so, how could such a measure be implemented?

At the moment, there is a gas-guzzler tax which, apparently, look something like this:

Code: Select all

GAS GUZZLER TAX
Unadjusted MPG (combined)*           Tax

at least 22.5  	                   No tax
at least 21.5, but less than 22.5 	$1000
at least 20.5, but less than 21.5 	$1300
at least 19.5, but less than 20.5 	$1700
at least 18.5, but less than 19.5 	$2100
at least 17.5, but less than 18.5 	$2600
at least 16.5, but less than 17.5 	$3000
at least 15.5, but less than 16.5 	$3700
at least 14.5, but less than 15.5 	$4500
at least 13.5, but less than 14.5 	$5400
at least 12.5, but less than 13.5 	$6400
less than 12.5  	                  $7700

However, the apparent downside of this tax is that trucks - and therefore minivans and SUVs - are excluded, and it is a one-time sales tax rather than an ongoing maintenance tax. One could argue as well that the bar is set a little low for exemption from this tax, based on the average fuel efficiencies posted earlier by Gerald Tarrant. Those three aspects could be modified if this tax should be more prohibitive - at the very least, an increase of exemption standards to (arbitrarily) 30 mpg and the elimination of the 'light truck' dodge would be useful improvements.

For those interested, here is a summary by the Congressional Budget Office comparing raising fuel efficiency standards with a gasoline tax. Its general conclusion is that an increase in the gasoline tax (currently 18.4 cents on the gallon for the feds and an average of 41 cents on the gallon overall) would cost less than raising CAFE standards while saving more gasoline for the first 14 years.

SWPIGWANG · Post by **SWPIGWANG** » 2006-10-13 11:33pm

Gerald Tarrant wrote:
The average fuel efficiency of European cars is over 40 mpg, of Japanese cars 45mpg, and North American cars 20.4 mpg.
from Wiki

Kind of damning; good job Free Market!

Gas prices in Europe and Japan is also far higher than in the US, due to taxes and other things. There is good incentive to use more efficient cars under this environment.

Not saying that is the only difference accouting for mpg differences, but it is a factor alright.

Gerald Tarrant · Post by **Gerald Tarrant** » 2006-10-14 01:02am

[qoute="SWPIGWANG"]Gas prices in Europe and Japan is also far higher than in the US, due to taxes and other things. There is good incentive to use more efficient cars under this environment.[/quote]

That was sort of the point of the thread. I don't know of the graphic is still there or not, but the NY times article quoted $1.04 as the average gas tax per gallon in Canad with the US being the lowest of the industrialized nations at and average of ~$.40/gallon. Just in case you can't see the original graphic:

Britain $4.24 /gallon
Germany $3.99/gallon
France $3.80/gallon
Italy $3.75/gallon
Japan $2.07/gallon
Canada $1.03/gallon
US $.40/gallon

The link to the article is in the Original post.

When I was trying to confirm Canada's gas tax rates the most common google results were for old value ~$.40/gallon (from 2001-2002). Or for anti-tax websites. Actually one of the funnier ones I found PDF WARNING was right here

Apparently these folks were implying that the only possible justification for a gas tax was highway spending, however the Simplicius noted that the CBO thought such a tax could encourage people to drive less. He links to the CBO analysis of this a few posts back. Surprisingly the CBO did a similar analysis back in 2002 but I never heard about it, I guess it got overshadowed with war warnings and such.

Bact to the parts of the question in the original thread, what would you do with the revenue? And this tax is certainly going to make trouble for rural and low income folks. How would you fix that?

My answers gas tax revenue gets split into a few areas, tax rebates for lower or fixed income folks, grants for research into alternative fuel methods, building nuke plants, and drilling in ANWR because it offends me that somewhere there are happy Caribou when there could be happy oil derricks

.

Ma Deuce · Post by **Ma Deuce** » 2006-10-14 10:27pm

Darth Wong wrote:The problem here is that American automakers have not focused much effort on high fuel-economy cars, so strict fuel-economy standards will tend to put even more pressure on a domestic auto industry which is already reeling. That's just another reason why the idea won't fly in the US.

GM and Ford have small (sometimes tiny, by our standards) fuel-efficient cars in their European lineups. They could import them or open up another production line over here (they have done so in the past, though with mixed success), but they won't until North American gas prices are high enough to create demand for them.

LordShaithis · Post by **LordShaithis** » 2006-10-15 07:01am

Man, what am I gonna do if they add some prohibitive tax to gas? Quit taking luxury drives through the countryside? Nobody does that shit. All I would do is use the same amount of gas I always do to get to the places I need to be, while taking it up the ass money-wise.

Prozac the Robert · Post by **Prozac the Robert** » 2006-10-15 07:31am

LordShaithis wrote:Man, what am I gonna do if they add some prohibitive tax to gas? Quit taking luxury drives through the countryside? Nobody does that shit. All I would do is use the same amount of gas I always do to get to the places I need to be, while taking it up the ass money-wise.

Problem is, that'l happen anyway when oil gets more scarse. This idea would just make that more gradual, and hopefully pay for some alternatives while it's at it.

Mange · Post by **Mange** » 2006-10-15 07:32am

About how much is the gas tax in the U.S.? (Here in Sweden, various taxes amounts to 2/3 of the price of gas.)

Patrick Degan · Post by **Patrick Degan** » 2006-10-15 10:36am

Drooling Iguana wrote:The problem is that in many areas of the US there really isn't an alternative to running a car. If this tax coincided with (and helped fund) a massive revamp of public transportation systems across the country it might do some good, otherwise people are still going to use the same amount of gas and just pay more for it.

Quite true. In the burg where we're living now, the public transit system is a joke. Even back in New Orleans, there were many places where you simply had to have a car to get to them in any reasonable amount of time, or even at all.

This country used to have a very extensive network of inter-urban rail lines and trolley lines in all the major and quite a few minor cities decades ago. Until we get that back again to provide a fast, reasonable alternative to cars, we'll never see European-style gasoline taxes or higher fuel efficiencies. And you'll get the inevitable resistance from libertarians who will all but argue that cars are a constitutional right and the nuts who think that public transit = communism or some such nonsense.

Post by **Darth Wong** » 2006-10-15 10:38am

LordShaithis wrote:Man, what am I gonna do if they add some prohibitive tax to gas? Quit taking luxury drives through the countryside? Nobody does that shit. All I would do is use the same amount of gas I always do to get to the places I need to be, while taking it up the ass money-wise.

Not true. Historically, there has been a spike in the popularity of smaller, more fuel-efficient cars when gas prices were high. This happened after the gas crisis of the early 1970s and it's happening again now, although to a lesser extent (not surprising since this gas crisis was nothing compared to the one in the 1970s). If gas prices go up, people will find a way to use less gas, probably by buying smaller cars.