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01/04/2009

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Jack

Neil... yeah! I guess some of the old myths of holding back IC efficiency are still out there. At the same time "Detroit" is criticized for a low MPG product mix, truth is they still hang onto a 50% market share. "The Market" speaks?

Old "muscle cars" turned more of the gas into power, but through very high compression ratios requiring leaded high octane. Then we've had to cam them such that all the fuel is burned inside the engine by comparison.

Apparently "well to wheel" conversion of oil BTU's is dropping due to the well being further out and deeper, and more fuel being wasted, idling in some 100 grid-locked choke points around the US. The WTW number is about 15% (RMI.org) Widespread use of plug in hybrids should improve the WTW ratio and offer us a wider choice of fuels.

Someone recently came close to setting a Class drag racing record on E-85. I've long suspected that eth will require a special engine instead of just fueling a gasoline engine with eth. But is is worth it???

That "price floor" taxation has some merits, though pols will likely lack the spine to set it high enough. In "better times" it's tempting to make gas taxes ramp up from that floor as a percentage of the sale price. That way those tempted to meddle with gas prices would know that their best and most wasteful customer would quickly go on a diet and drive demand down while filling our OWN coffers.

a student of economics

I'm disappointed that Prof. Becker frames the discussion of gas taxes simply as "higher vs. lower overall taxes", and not surprisingly, favors lower taxes.

The far more interesting question is "For a given amount of tax revenue, how should it be collected?". For most economists, probably including Prof. Becker, the answer is that Pigovian taxes like a gas tax are far preferable to taxes on work and savings.

Prof. Becker should add his voice to the majority of economists who favor higher gas and energy taxes, with the proceeds used to cut other taxes. Tax negative externalities (pollution, congestion, accidents, climate change, terrorist funding, etc) not things with positive externalities.

If he's concerned about the recession or the size of gov't in general, feel free to cut other taxes by MORE than we raise gas taxes.

The questions of total tax amount and type of tax used are completely orthogonal. It's a bit pity Prof. Becker has confused the issue. Let's hope he clarifies it in a future blog post.

bob

If a massive recession/credit contraction is the wrong time to raise gas taxes, why was it the right time to let the Big Three fail?

jack

Student! Yes!! Right on! Though you'll have to fight your way through a lot of half-backed "Libertarians" and such who seem to think the income tax is THE standard and if "the government" (US?) were to shift the tax to fuels etc that would be government intervention and steering. So be it...... as you point out what could be dumber than taxing the primary factors of capitalist production while giving fossil fuels a pass?

Bob: Ha! good point!

student

A direct implication of your discussion is that the U.S. government should not be buying oil to fill its strategic reserves, low energy price is one of the few positive things for the economy right now. It is frustrating to see the government pushing up the oil price on one hand and contemplating massive stimulus package on the other.

neilehat

Student, the name says it all. Try getting out into the real world and find a job by which you can support yourself and others. After some time at this, come back and talk to me about economic stimulus packages. BTW, whose paying your way?

nathan

maybe not "immediately" ... but depending on how things develop this year, there may be an opportunity to consider various scenarios which would become efffective around April 2010 (when tax returns are due for 2009).

Hugo Pottisch

If the economy cannot afford this... how should the ecology? We should think of ourselves as being an even bigger GM.

Hugo Pottisch

From the WSJ:
http://online.wsj.com/article/SB123146091530566335.html

"The chief executive of Exxon Mobil Corp. for the first time called on Congress to enact a tax on greenhouse-gas emissions in order to fight global warming."

Maybe the CEO of Exxon has children or something? He wants them to have a good education and good job opportunities and more wealth than his generation.. but he also wants them to have a chance to really get their. He apparently understands that the economy is build on the ecology and not the other way around. He further understands that no matter how dire our current economic situation is - it is in splendid shape compared to the ecology.

For example - we experience the same species loss today as has only been witnessed 65 million ago after one ore more larger meteors had hit our headquarters. I like this short talk by E O Wilson on that matter...
http://www.ted.com/index.php/talks/e_o_wilson_on_saving_life_on_earth.html

Imagine economic decline of only 0.7% per year - but for many decades and you know where we are today.

Jack

Hugo, Ha! good point! One thing "wrong" about the US, the world, and the environment........ is that we can't divest Hummer or Saturn, we're "stuck" with the whole "company".

twojeanonse

Nice to see so good informations. Very good blog.

MikeF

I think consideration should definitely be given to a revenue-neutral gas tax. Target the negative externalities of carbon emissions and use the revenue boost employment, through spending programs or tax cuts.

Tarun Chitra

Dr. Becker,

I was just wondering if there were any papers written (and/or models created) that deal with continuously-adjustable taxes. In the case of gas taxes, as I see it, this could work by adjusting a daily and/or hourly gas tax based on a spot oil and gas price volatility and some sort of convolved average of the 1,2,6-month forward contracts. I'm just thinking of this in the sense of a theoretical framework for testing what the effects of various types of dynamic gas taxes, which may be useful in such a scenario. Considering the technological advances in the gas distribution infrastructure, this may be possible in a limited number of locations and I think it would be pretty interesting to see the consumer response to such a taxing mechanism.

Thanks

Tarun Chitra

Jack

Tarun: I've thought a bit about the effect of fuel taxes that have been suggested to vary such that the end price stays the same or nearly the same. ie. The we find out, some price, $3? is something of a sweet spot in terms of affordability and lowering consumption. The tax would then be the variable margin between costs, profit et al and selling price.

I conclude it would be inflationary, as the consumer would have no reason to price shop, and the wholesalers and retailer would have reason to wink and say "Well, the margin is just going to Unc anyway..." and take the margin for themselves. Government then comes back for more taxes?

It's a very curious biz anyway, with retail margins very thin....... a nickel maybe .15 for a volume guy who buys well, with apparently the profit being made up in the convenience store where a soft drink or coffee earns more than half a tank of gas.

neilehat

Sliding scale taxation, that changes from hour to hour, minute to minute; Great! Not only will we have, increased "PRICE VOLATILITY", due to hedging and outright speculation in the Commodities Market for Crude and Fuel (see the Cauliflower Case), but the tax scales are manipulated as well. Not only on the Federal level, but also on the State, County and Municipal level.

Just one question, how is the Transportation Industry supposed to write Contracts for the moving of goods when they don't know what their fuel costs are going to be when it comes time to transport? And what about the producers whose product needs to be transported. How do they figure out their costs?

Tarun Chitra

Jack: I suppose. I just asked the question from a more theoretical perspective (I'm a mathematics student, so have a variable tax would give one some interesting academic and not necessarily practical problems to analysis with respect to the gas tax), and there may never be an equilibrium, especially considering that over 1/2 of the world's population has access to government subsidized gas (which may make some of the supply assumptions different)

Neilehat: Again, it's more of an academic question as opposed to a practical question for me. As for how to deal with variable costs...don't they already have to hedge their overall futures portfolios on market-controlled and variable costs? Since the tax would be based off on these hedges, it shouldn't be an issue (depending on their cost estimation techniques)

Tarun Chitra

Jack: I suppose. I just asked the question from a more theoretical perspective (I'm a mathematics student, so have a variable tax would give one some interesting academic and not necessarily practical problems to analysis with respect to the gas tax), and there may never be an equilibrium, especially considering that over 1/2 of the world's population has access to government subsidized gas (which may make some of the supply assumptions different)

Neilehat: Again, it's more of an academic question as opposed to a practical question for me. As for how to deal with variable costs...don't they already have to hedge their overall futures portfolios on market-controlled and variable costs? Since the tax would be based off on these hedges, it shouldn't be an issue (depending on their cost estimation techniques)

Anonymous

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Ralph Deeds

Increasing the gasoline tax is a political non-starter. Obama has ruled it out and Congress shows no interest. Moreover, as has been pointed out it is regressive. That leaves tinkering with the CAFE standards, a non-commercial motor vehicle weight tax and an engine displacement tax. Of these alternatives, a weight tax offers several advantages:
1. It would not be regressive or at least less so than a gasoline tax;
2. It would be simple to administer and easy to understand;
3. It could be tapered in over 5 or more years to allow car buyers and makers time to adjust;
4. It would preserve the freedom of car buyers to buy and drive whatever type of vehicles they prefer so long as they were willing to pay for the cost of externalities--of pollution, climate change, and contribution to dependence on foreign oil; and
5. A weight tax would keep the government out of the vehicle design and engineering process, leaving the car companies free to design and manufacture whatever types of vehicles they believed they could make and sell for a profit.

If a weight tax were adopted it should include a weight credit for the heavy batteries and other equipment needed on hybrid and electric vehicles.

شات صوتي

Increasing the gasoline tax is a political non-starter. Obama has ruled it out and Congress shows no interest. Moreover, as has been pointed out it is regressive. That leaves tinkering with the CAFE standards, a non-commercial motor vehicle weight tax and an engine displacement tax. Of these alternatives, a weight tax offers several advantages:
1. It would not be regressive or at least less so than a gasoline tax;
2. It would be simple to administer and easy to understand;
3. It could be tapered in over 5 or more years to allow car buyers and makers time to adjust;
4. It would preserve the freedom of car buyers to buy and drive whatever type of vehicles they prefer so long as they were willing to pay for the cost of externalities--of pollution, climate change, and contribution to dependence on foreign oil; and
5. A weight tax would keep the government out of the vehicle design and engineering process, leaving the car companies free to design and manufacture whatever types of vehicles they believed they could make and sell for a profit.

If a weight tax were adopted it should include a weight credit for the heavy batteries and other equipment needed on hybrid and electric

EmeRsinnA

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