January 5, 2009

Federal Commission's Gas Tax idea

Raising taxes during a recession, by whatever means is a bad, bad, bad idea, and it's just what the Congressional commission suggests be done. Not only done, but done to the tune of 50%. Given that the federal government has promised $1 trillion in bailout funding, given the massive levels of federal debt, it's tempting to raise taxes to cover that shortfall. Specifically the increasing gas tax has been suggested to cover the shortfall that the reduced driving habits have cause the in the revenue associated with that tax.

The revenue is used for road, bridge and transit programs. But lower demand for gas has continued, despite the fall in oil prices. As a result revenues are down, and the funding for those programs, like road repair, has been reduced. A 50% increase is intended to compensate for this demand shift, so that these programs can continue.

Driving habits have been changed, either because people are now intent on driving less and the change is permanent, or because people are still worried about the recession and another rise in oil prices and are being cautious. It is more likely the latter - America is a car nation. That doesn't change over one summer. In 1973 with the gas rationing habits changed, but the changes weren't permanent and they won't be this time either. Demand will eventually return to normalized levels.

The impact of raising taxes, however, causes a delay in that return to the previous levels. Raising taxes causes a change in behavior. It will cause a further reduction in demand - as prices rise, demand goes down - it's like an immutable law of physics. The only exception to it is inelastic demand - in other words if you have no choice but to drive, you have no choice but to pay the higher tax and continue to drive whereas if you have a choice (inelastic demand) - public transit, you will adapt accordingly (elastic demand).

Either the panel doesn't understand fundamental economics, in which case they shouldn't be a panel discussing taxation, or more likely, they understand and don't care about the impact. Either scenario is possible, either one is bad. In the former case, we will have unintended consequences of lowered demand and an offset in the expected incremental tax revenue, negating to an undetermined extent, the goal of the tax increase.

In the latter case, the goal of the tax increase is not revenue. It's really about changing behavior. President Obama had stated that he was unconcerned about higher gas prices but rather was concerned about the speed they rose.

What's the real agenda? Sounds like a green agenda to me. Gas prices have come down, but demand has stayed low, so let's continue that demand destruction by imposing a tax that will push prices artificially higher. It will help reduce carbon emissions. Further, urban tax payers, more likely in general to be Democrat supporters will adjust by switching to more use of public transit, but those rural conservatives will be stuck paying the higher taxes because public transit is less of an option for them. Sounds punitive to me.

From a Democrat standpoint, it's all upside; increased taxes, increased personal expenditures to largely conservatives, a climate change goal being realized, and no need to consider whether the funding to any of these programs is wasteful.

Lastly according to the Fox article, there's yet another reason to believe that the whole green play by the Democrats is just another ploy to manage taxes under a different guise;

Charles Whittington, chairman of the American Trucking Associations,
which supports a fuel tax increase as long as the money goes to highway
projects, said Congress may decide to disguise a fuel tax hike as a surcharge to
combat climate change.

Transportation is responsible for about a third of all U.S. carbon
emissions created by burning fossil fuels. Traffic congestion wastes an
estimated 2.9 billion gallons of fuel a year. Less congestion would reduce
greenhouse gases and dependence on foreign oil.

"Instead of calling it a gas tax, call it a carbon tax,"
Whittington said. "As long as we label it as something else we may have the momentum and acceptance to move forward."

Bottlenecks around the nation cost the trucking industry about 243
million lost truck hours and about $7.8 billion per year, according to the

While Whittington is the head of an independent organization, his statements echo would could be a lot of Democrat thinking - create the guilt associated with climate change then use that guilt to create a new tax based on the notion that it is being done for green reasons.


  1. The high cost of gas this past year has seriously destroyed every budget from the average family to the largest of municipalities.The average family went broke at the pump alone, then added to the misery the higher cost of manufacturing and shipping was passed on to us at the checkout for every consumer product. School districts went broke keeping the busses on the road.One police dept in my area required officers to park their car for 15 minutes of every hour just to conserve .Lower prices are not here to stay.OPEC just announced another production cut.With all these bailouts in the billions why doesn't our nation see the need to bail us out of our dependence on foreign oil? I just read a really interesting new book called The Manhattan Project of 2009 Energy Independence Now by Jeff Wilson.I never realized it would only cost the equivalent of 60 cents per gallon to charge and drive an electric car. Also,The electricity to charge the car could come from solar or wind generated electricity. If all gasoline cars, trucks, and suv's instead had plug-in electric drive trains, the amount of electricity needed to replace gasoline is about equal to the estimated wind energy potential of the state of North Dakota.What powerful resources we have been neglected. The last economic stimulus package cost 168 BILLION and did absolutely nothing to stimulate our economy or create jobs.
    Bail America out of its dependence on foreign oil. Wouldn't that make more sense? http://www.themanhattanprojectof2009.com

  2. Sure it would, if it were a viable option. Why not drill now, while the electric car technology is unready to bear fruit? Electric cars won't be economically viable for a number of years yet.

    Why those who support electric power vehicles should disdain American oil drilling is confounding. Either they don't really want energy independence or else it is secondary to green concerns. And green concerns are nothing more than hype.


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