Jan 17 2008

Gas tax to increase – but what for?

Published by at 7:31 pm under Externalities,Market failure

My Way News – Transit Panel Urges Gas Tax Increase

Looks like an increase in the gas tax might be on the horizon… but is it enough? Look at what the proponents of this tax want to do with the revenue:

Under the recommendation, the current tax of 18.4 cents per gallon for unleaded gasoline would be increased annually for five years – by anywhere from 5 cents to 8 cents each year – and then indexed to inflation afterward to help fix the infrastructure, expand public transit and highways as well as broaden railway and rural access, according to persons with direct knowledge of the report…

Okay, so driving places lots of strain on our physical infrastructure (i.e. roads, bridges, highways, etc.), surely we can consider that an externality that could be mitigated through a corrective tax. But does 40 cents over five years sound like enough to correct the negative externalities not identified here? What costs does America’s bad driving habit place on society beyond infrastructure degradation?

Thanks to Professor Haab for the link

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About the author:  Jason Welker teaches International Baccalaureate and Advanced Placement Economics at Zurich International School in Switzerland. In addition to publishing various online resources for economics students and teachers, Jason developed the online version of the Economics course for the IB and is has authored two Economics textbooks: Pearson Baccalaureate’s Economics for the IB Diploma and REA’s AP Macroeconomics Crash Course. Jason is a native of the Pacific Northwest of the United States, and is a passionate adventurer, who considers himself a skier / mountain biker who teaches Economics in his free time. He and his wife keep a ski chalet in the mountains of Northern Idaho, which now that they live in the Swiss Alps gets far too little use. Read more posts by this author

26 responses so far

26 Responses to “Gas tax to increase – but what for?”

  1. Angel Liuon 17 Jan 2008 at 9:09 pm

    I think that a 40% tax rate on gasoline is enough to remove gasoline's negative externalities. Yet, it would mostly be environmental impacts. When tax for unleaded gasoline reach 40%, demand for gasoline will certainly decrease because high price motivates consumers to switch to cleaner energy resource. Currently, biofuels are waiting for oil price to climb so that the high price can set off biofuels' high costs. When we switch to cleaner energy source, greenhouse gas emission will dwindle, slowing global warming and other air pollution problems. As for road maintenance and infrastructure, the US government needs to come up with a new policy to fund these projects. Yes, a 40% tax rate cannot correct all the problems brought by gasoline, but it certainly will eliminate some negative externalities to an extent.

  2. Charlie.Gaoon 18 Jan 2008 at 9:50 pm

    Ahaha.. Angel it's a 40cent gas tax over the next 5 years. Not 40%. That would just be crazy. But anyways, I personally do not think 40cents is enough to correct the pollution that cars and trucks will exhaust during that time period. The government needs to tax oil significantly in order to decrease demand for oil, OR, subsidize companies such as Honda who are making hydrogen based cars. Whichever the government decides to do, the pollution that cars cause must be alleviated.

  3. Jessica Ngon 19 Jan 2008 at 12:44 am

    Wow 40 cents over FIVE years?! That's ridiculous. That barely does anything. Maybe "index [ing] to inflation" afterwards might help with the improvement of infrastructure. But I think the larger problem at hand is of course, the issue of pollution that is threatening all of our lives. A gas on tax is a good thing, but this one seems to have be focusing on something more trivial. And 40 cents over five years to cover all these externalities, including the improvement of instruction and others such as pollution, is impossible.

  4. kevinhuangon 19 Jan 2008 at 5:15 pm

    I don't think people will drive any less because of this tax because most people in the US live busy hurried life where a driving around is essential to meeting their needs. I think people that realize this tax will start buying more eco-friendly cars that can go much more on one gallon of gas such as the smart car and other hybrids that have been coming out, so in the end, this tax on gas will probably actually help improve the eco-friendliness of people , but I do not think i will will reduce the amount of driving done by people.

  5. TimChuon 19 Jan 2008 at 5:42 pm

    40 cents is just stupid. The benefits of using a car are worth much more than just 40 cents. The tax needs to be set at a price that is high enough to cause some people to reconsider their car use and choose other methods of transportation…such as segways.

  6. Jack Loon 19 Jan 2008 at 6:58 pm

    40 cents over 5 years…I doubt that change the driving habits of Americans significantly. The 40 cents taxe won't cover all of the negative externalities caused by the emission of CO2 from driving cars. Also, the people live a busy life in which transportation is essential.

  7. mina.songon 19 Jan 2008 at 9:14 pm

    40 cents over 5 years?? negative externalities…

    It is huge increase but, i think we need this much…. cause of the carbon dioxide, the global warming has resulted significant weather changes and movements of animals. if we don't save the world, it could result some problem. rather than try to decrease the tax, I think it will be better and faster to find new effective resource. something that doesn't harm nature. !!^^

  8. Howardon 19 Jan 2008 at 10:45 pm

    Yes. I everyone who commented on this page thinks that 40 cents over five years is nothing. (to most people) This 40 cent barely changes anything at all. Why does the US government keep down the gas tax/ price? To get more votes and win elections?

  9. Soyeon Yoonon 20 Jan 2008 at 2:09 pm

    40 cents per a gallon of gasoline over five years… sounds like the goverenment is protecting gasoline market. This tiny tax on gasoline will barely affect the number of drivers and will not help fix negative externalities causes by large usage of gasoline. Bad driving habits of Americans can even cause traffic accidents and traffic jams, making negative externalities even serious.

  10. Chris Seahon 20 Jan 2008 at 3:37 pm

    40 cents a gallon over five years is pathetic. The government might as well not do anything, though this is of course a step in the right direction. Perhaps the American government does not want to cause unrest and mass dissatisfaction amongst its populace and is thus only increasing the tax at a slowly incremental rate. Nevertheless, rising gasoline prices have successfully driven people in a greener direction as evidenced by the huge and growing popularity of the Toyota Prius and other hybrid vehicles.

  11. MichaelChowon 20 Jan 2008 at 4:50 pm

    I agree with Chris that the fact of only raising the price of a gallon of gas by 40 centers over a five year period is foolish. Especially when the concern of negative externalities is at stake for the society's well-being. Although it may cause fewer consumers in gasoline, therefore looking for cheaper alternatives this will not cause the desired amount of consumers to be aware and help change this negative externality.

  12. James Tsaoon 20 Jan 2008 at 6:26 pm

    Ok, like what most people are saying, 40 cents over five years isn't enough to correct the negative externalities of driving+pollution. perhaps it is due to the fact that the marginal cost of restricting automobiles by taxing gas is still significantly higher than its marginal benefit. Unless marginal cost lowers due to improved substitutes for energy or marginal benefit increases because global warming is accelerating faster than ever, maybe 40 cents over 5 years is the best cost-benefit solution so far, maybe not…

  13. Nicole Wongon 20 Jan 2008 at 6:30 pm

    40 cents on its own doesn't seem like an effective tax, seeing as benefits of driving the car certainly outweigh the costs. However, there is a large amount of people who use the gasoline, and perhaps this will cover the costs to things such as infrastructure and so on. More importantly, though, is the cost to the environment. The tax could "solve" the issue of the wearing out of highways, but what about pollution? The transit panel in the article is not even considering the pollution that gasoline is emitting into our atmosphere.

  14. Conrad Liuon 20 Jan 2008 at 8:14 pm

    As many other before me have said, the tax placed on gasoline will not be enough to cover the infrastructure cost, especially if it goes up 40 cents over five years. However, while it is true that the problem lies in its price, it is still a good place to start. For one thing, the increasing price, although small, will deter some customers from buying this expensive gasoline, and thus switch to cleaner ways of transportation. Meanwhile, the revenue received from the gas tax can still be used to at least repair some infrastructure in America's society.

  15. judychenon 20 Jan 2008 at 10:20 pm

    40 cents over five years …I don't think it would change anything. 40 cents is just a small amount of money, people would just keep using gas and driving to everywhere.

  16. Claire Moonon 20 Jan 2008 at 10:56 pm

    Well, agreeing to most people above, 40 cents over FIVE YEARS isn't enough. However, I was thinking that there might be some other taxes the government levies which could help to reduce to negative externalities. Although 40 cents sound like it is not even close to enough, if the government put too much tax on the gasoline, people would drive less resulting in no effect. Therefore, the government should increase the gasoline tax a big higher, but not that it would shift the demand curve to the left due to decrease of demand.

  17. andyxuon 20 Jan 2008 at 11:12 pm

    Omg. I don't understand how the comments above me are arguing whether a 40 cents increase is enough to diminish the negative externalities of driving. What is your reference point, how can you tell?

    Well, I think opportunity cost is a good reference point. Do you honestly think that a 40 cents increase is going to discourage car use and encourage things like public transportation and using ethanol for oil. I don't think so, especially, when such a large portion of the US economy is dependent of oil.

    Furthermore, I would like to point out that trucks, factories and nuclear plants generate a lot more wastes into the air than do automobiles, though I do not have the exact figures for support.

  18. Howard Jingon 21 Jan 2008 at 2:21 pm

    Fourty cents a gallon may not seem to be a lot, but consider this: in 2006, the United States used around 137,000,000,000 gallons of gasoline. Of course not all of this gas was used by households, and not all of it was unleaded, but that is still a lot of gas. And the amount of gas that the United States uses is only going to rise in the future.

    If the United States were to tax people 40 cents a gallon, and there were 137 billion gallons of gas used, that means that the U.S. would raise 54.8 billion dollars. Of course fourty cents a gallon won't discourage people from driving; that's not the point of the tax. Its purpose is to maintain the United State's degrading highways and infrastructure. 54.8 billion dollars isn't a small amount of money either. To put things into perspective, NASA has a budget of approximately 17 billion dollars. 54.8 billion dollars is more than tripple NASA's budget.

    Of course, this money would also have to pay for cleaning up the atmosphere's carbon dioxide levels, and since we don't know the full extent of effects that an increase of carbon dioxide (as well as other greenhouse gasses) has on the environment, that amount of damage isn't really quantifiable.

  19. Drew Venkatramanon 21 Jan 2008 at 6:20 pm

    OMG 40 cents what will we do. Honestly I think its a good idea. Outside of major cities a lot of the nations roads are gravel, shouldn't everyone using the roads do their part to ensure that people out there can drive without ruining their cars? I think so. And although 40 cents may seem like a lot its 40 cents per barrel. so thats like maybe 2 cents per gallon in the next 4 years. Seriously, its not like the gas prices wont be raising way more than that anyways

  20. Trevor Sunon 21 Jan 2008 at 6:52 pm

    Well I don't think much will change since gas prices today are still rising. Although the facts show that this is very significant, my thought is that people will take very little notice of the gradual change.

  21. Caleb Liaoon 21 Jan 2008 at 7:49 pm

    The raise in the oil prices would not do much to the amount of oil purchased because as we can tell, to the consumer the marginal cost versus the marginal benefit is lower, so the consumer will continue to buy that good, just that they will unhappily buy that good. I think that the intention is good, because it is trying to push people to seek alternative energy sources, but I think that its the wrong approach. The marginal benefit of oil is virtually inelastic, so that the quantity purchased will virtually stay the same, while there will be a significant increase in the price of oil.

  22. serenatuon 21 Jan 2008 at 9:07 pm

    I agree with almost everyone here, increasing 40 cents over five years is nothing. People who drive

    around often won't mind this increase. If the government really wants to reduce the demand for

    oil, then they better have a significant increase, otherwise people will just keep on demanding it.

  23. Jonathan Lauon 21 Jan 2008 at 11:59 pm

    Knowing just how important cars are to Americans, I would have to agree with just about everyone who posted before me. A 40 cent increase will in no way affect the demand for gas. Americans need a way to get around, and cars are the most efficient way to do that. I'm sure the American oil industry knows just how important oil is to the country.

  24. Hansen Guon 22 Jan 2008 at 12:21 am

    I think a 40 cents increase is a first step towards making people think twice about taking the car. It's a first step towards people thinking about mass transportation. In my opinion, Americans will keep using their cars until a better alternative is found. The burden of the tax is on the consumer. Why not put more pressure on the companies? The pressure can only lead to more environmentally methods to power our transportation needs. 40 cents is a lot. But I feel the government has fired this tax in the wrong direction.

  25. calvinluon 22 Jan 2008 at 1:10 am

    40 cent in five years is just pitiful. May be the government didn't want to shock everyone by dramatically raising the price, but 40 cent in 5 years…I mean how many infrastructure can they fix? And that’s only a small portion of all the externalities cause by driving as well, such as pollution. I think they should come up with something more effective.

  26. Danaon 22 Jan 2008 at 4:15 am

    Maybe 40 cents is not that "pitiful" or "stupid." As individuals who are sensitive about even dropping a one cent coin, all of us are very stingy. So maybe 40 cents can collect the taxes that are needed, while not stressing the American population with yet another tax out of their own pockets. Not only that, considering that there are myriad of cars in the U.S. and the fact that gas is an essential to cars, almost like rice to Asians, the tax that will be collected may not be so infinitesimal. It is plausible that this tax will be effective.