It is my understanding that the purpose of a regulatory excise tax like the gasoline tax is two-fold: to decrease demand for the product being taxed and thus decrease its associated negative externalities, and to raise revenue that can be used to combat those externalities. In a perfect world, the amount of revenue raised will be just enough to offset the externalities caused by consumption of the product, and this makes good sense to me. Nowhere do I see room in this analysis for factors such as the general state of the economy or industry; it seems that if a gasoline excise tax is a good idea, then it is a good idea in any economic circumstance.

That being said, the gasoline tax is a regressive tax that hurts low and middle income wage earners -- just the folks who the state should be seeking to insulate from the recession -- more than high income individuals who are better able to handle an economic downturn. If delaying the implementation of an otherwise desirable gasoline excise tax is a good idea, then perhaps the temporary suspension of other beneficial regressive taxes such as those on cigarettes and alcohol -- as well as state sanctioning of lotteries and gambling -- is something worth thinking about.

It is my understanding that the purpose of a regulatory excise tax like the gasoline tax is two-fold: to decrease demand for the product being taxed and thus decrease its associated negative externalities, and to raise revenue that can be used to combat those externalities. In a perfect world, the amount of revenue raised will be just enough to offset the externalities caused by consumption of the product, and this makes good sense to me. Nowhere do I see room in this analysis for factors such as the general state of the economy or industry; it seems that if a gasoline excise tax is a good idea, then it is a good idea in any economic circumstance.

That being said, the gasoline tax is a regressive tax that hurts low and middle income wage earners -- just the folks who the state should be seeking to insulate from the recession -- more than high income individuals who are better able to handle an economic downturn. If delaying the implementation of an otherwise desirable gasoline excise tax is a good idea, then perhaps the temporary suspension of other beneficial regressive taxes such as those on cigarettes and alcohol -- as well as state sanctioning of lotteries and gambling -- is something worth thinking about.

Apologies for the double-post :(

I would suggest that there be a Gas tax that was possibly implemented over 5 years at say $0.50/ gal. per year and that the money collected either be totally rebated on a per person basis or perhaps be invested as a ROTH 401k payment into an indexed fund.

That way it would be committed so that people and auto companies would plan their future based on A $2.50 tax and the plan would be revenue neutral so that it would not directly effect the national economy.

I think everyone agrees that now is not the good time to put a tax on gas consumption. Personally, I'm against it unless the gas tax comes along with a proportional cut in less-efficient (We don't have to debate what that is. I don't want to start a Supply Side vs. Egalitarianism debate) or less-desirable tax such as income tax (claims it distort incentives) or even the payroll tax (ease unemployment). If the tax is hiked gradually over the long run people should be able to adjust.

I think putting strings on the bailout to produce more efficient car will have little effect on both GM's health and gasoline consumption along with its externalities. GM is not bankrupt because they only produced gas guzzlers. All manufacturers, even foreign, are cyclically sensitive. None of them are doing well. However, GM has structural problems with their fixed costs they're hopefully in the process of resolving. GM was not stupid enough to think SUVs were going to be their bread and butter forever. Their fixed costs were too high to ride through current credit crisis. This was not because they failed to make a Prius competitor in 2008. Most hikes in cafe standards burden the consumer with the manufacturers' costs of R&D and production to get compliant. If you look at auto sales, no one is demanding the high fuel standards that congress and public shamed them for not achieving. The bulk of sedan sales are usually with the standard powertrain. Depending on the price of gasoline and the lease, the hybrid is not always the best value (ignoring any environmental utilities). Gas tax is the only way to encourage production and demand for efficient vehicles.

I'm disappointed I never once saw the word Pigouvian in this single post.

Äîñòàòî÷íî èíòåðåñíî, ÿ âîîáùå íå î÷åíü ëþáëþ áëîãè íî ýòîò ÷èòàþ ñ óäîâîëüñòâèåì!

I would suggest that there be a Gas tax that was possibly implemented over 5 years at say $0.50/ gal. per year and that the money collected either be totally rebated on a per person basis or perhaps be invested as a ROTH 401k payment into an indexed fund.

That way it would be committed so that people and auto companies would plan their future based on A $2.50 tax and the plan would be revenue neutral so that it would not directly effect the national economy.

Ìíå íðàâèòñÿ ôóòáîë, à ìóæ÷èíû, âêëþ÷àÿ òåõ, êòî îñòàâëÿåò êîììåíòàðèè, âñå ïîãîëîâíî ôàíàòû ôóòáîëà. Ïîýòîìó õî÷ó çàäàòü âîïðîñ. êàê Âû äóìàåòå, òî ÷òî Ðîíàëäèíüî ïåðåõîäèò èç Áàðñåëîíû â Ìèëàí, ýòî ïîëîæèòåëüíî ñêàæåòñÿ íà åãî êàðüåðå, è íà èãðå íîâîãî êëóáà, èëè…?

Áëàãîäàðþ âàñ, î÷åíü ïðèÿòíî áûëî ïðî÷èòàòü, è ñäåëàòü äëÿ ñåáÿ îïðåäåëåíûå âûâîäû.

The use of higher CAFE standards are indirect levers which only distort the market and provide advantages to foreign competitors.

CAFE standards are politically easier to enact than raising of gasoline taxes. It is the easiness which should have us moving uncomfortably in our seats.

If you/(we) are serious about reducing fuel consumption than we should be honest enough to have a full and open debate on the issue and make decisions in the full light of day.
If higher fuel taxes are necessary: let's discuss the matter and make a decision one way or the other.

Èçâèíèòå, âû — íåãð, èëè ýòî ó âàñ ñèíÿê òàêîé

Wouldn't it be simpler just to put up check points and road blocks to prevent people from driving where they want?

How about cutting these taxes, and on a permanent basis?

Not all of us want to drive European-inspired golf carts. There are plenty of ways to make those large vehicles fuel efficient yet still look/feel like nothing was changed.

Cut this tax and tell the Sierra Club to start hugging trees with their SUV's.

How about cutting these taxes, and on a permanent basis?

Not all of us want to drive European-inspired golf carts. There are plenty of ways to make those large vehicles fuel efficient yet still look/feel like nothing was changed.

Cut this tax and tell the Sierra Club to pound sand.

How about cutting these taxes, and on a permanent basis?

Not all of us want to drive European-inspired golf carts. There are plenty of ways to make those large vehicles fuel efficient yet still look/feel like nothing was changed.

Cut this tax and tell the Sierra Club to pound sand.

I, reluctantly, agree that now is not the time to increase gas taxes for the reasons mentioned.

I'd add to the reasons the fact of our just having built this fleet of miserable gas hogs at great cost (Ha! WAS this a conspiracy? Econ terrorism??) and most people would not be able to adapt to higher gas taxes by trading their vehicles in the near future anyway. For many the "car of the future" does not exist. My guess is that we'll see a broad mix of cars from the much ballyhooed plug-ins to CNG and more; so it seems short-sighted to throw away our existing rigs only to invest in halfway "solutions".

But...... I have been a fan of moving a portion of the income tax burden to fossil fuels for 30 years or so. Doing so would have the obvious effect of lowering consumption and increasing the efficiency of our cars, trucks buildings and even farming methods. It seems less obvious to most that income taxes make it difficult to hire each other. This effect is most apparent for individual home owners as business has the advantage of being able to deduct the costs of employing professional help while homeowners do not. The result is that of creating a high incentive toward "doing it yourself" as compared to specialization.

So, I too lean toward a ramping up of fuel taxes over time which should now include carbon tax elements which businesses too would pay w/o deduction. Still, many people are not sensitive to small gas taxes so something akin to the CAFE standards and gas guzzler excise taxes should be refined and retained.

Could it be that America MIGHT be able to think longer term and act now so that we might PLAN our future decisions?

I, reluctantly, agree that now is not the time to increase gas taxes for the reasons mentioned.

I'd add to the reasons the fact of our just having built this fleet of miserable gas hogs at great cost (Ha! WAS this a conspiracy? Econ terrorism??) and most people would not be able to adapt to higher gas taxes by trading their vehicles in the near future anyway. For many the "car of the future" does not exist. My guess is that we'll see a broad mix of cars from the much ballyhooed plug-ins to CNG and more; so it seems short-sighted to throw away our existing rigs only to invest in halfway "solutions".

But...... I have been a fan of moving a portion of the income tax burden to fossil fuels for 30 years or so. Doing so would have the obvious effect of lowering consumption and increasing the efficiency of our cars, trucks buildings and even farming methods. It seems less obvious to most that income taxes make it difficult to hire each other. This effect is most apparent for individual home owners as business has the advantage of being able to deduct the costs of employing professional help while homeowners do not. The result is that of creating a high incentive toward "doing it yourself" as compared to specialization.

So, I too lean toward a ramping up of fuel taxes over time which should now include carbon tax elements which businesses too would pay w/o deduction. Still, many people are not sensitive to small gas taxes so something akin to the CAFE standards and gas guzzler excise taxes should be refined and retained.

Could it be that America MIGHT be able to think longer term and act now so that we might PLAN our future decisions?

Sethstorm?? If you've "plenty of ways" to make large cars "fuel efficient" I suspect you could command quite a salary in Detroit as they're a bit stymied on traditional gassers; perhaps a new Chevy Volt will fill your needs.

Today, it looks as though "the Sierra Club" has lots of company in their concern over air pollution and green house gases, but at $100 plus prices the immediate concern is that of going broke while "investing" heavily in developing the economies of OPEC while our own continues to unravel.

Short term thinking has got us where we are. Now is the time to think about the long term (or at least the midterm of the next few decades). Do you think there will be more or less easily accessible oil in 2020 than today? While it's not a guarantee, my bet is on more expensive oil and less of it. Let's build a transportation system for that environment.
The argument that this is going to require new and unproven technologies is a smokescreen. Internal combustion engines have become much more efficient in the last 20 years and yet the mpg has remained much the same. The advances have gone into increased horsepower and weight.
Phase in a gas tax and better CAFE standards. Let's not put off the change for another 10 years when it's even more painful.

I hope that the federal government will stop throwing good money after bad, pretty soon, and cut off aid to the auto industry. That would eliminate that argument from Dr. Becker’s case against raising gasoline taxes.

The argument against raising taxes during a recession seems to make sense. That is cited as one of the factors that turned a recession into the Great Depression 80 years ago. However, we could perhaps offset a gas tax increase against decreases in other taxes.

I like Judge Posner’s suggestion of approaching energy taxation on a broader basis than just a gasoline excise tax increase. The issues of environmental effects, and dependence on imports from difficult foreign countries, also apply to energy uses other than automobile use. A broader tax, such as a carbon tax, would address all of those areas.

Issues specific to driving, such as traffic congestion in urban areas, could be dealt with by increased use of tolls.

Êñòàòè, àäìèí. Âîò ÿ òåáÿ ñïàìëþ, à ìåíÿ íå áàíÿò. Ïðîñïàì ïî âñåéáàçå äàâàë ìàêñèìóì 170 òèö. Èíòåðåñíî? Èùè ìåíÿ %)

I commented on Posner's blog first so I'm only now seeing Jeff S's remark on "Pigouvian" possibilities (I agree, except I'd spell it "Pigovian";-), quite similar with what I wrote to Posner. So I'll add one more bit: Thomas Friedman's article at http://select.nytimes.com/2007/01/10/opinion/10friedman.html?_r=1 quoting Montana governor Brian Schweitzer's idea to "Set a floor price for crude oil in the U.S. at $40 a barrel forever. That will tell Wall Street that if it invests in new, clean coal technologies — which can be run profitably at the equivalent of $40 a barrel — OPEC will never undercut them".

Apart from the debate on whether clean coal in particular is a workable technology (Montana obviously has a bias towards "yes";-), the price floor aspect is the key bit -- crucial to any future private sector investment in alternative energy and conservation, and so much better than having the gov't pick winners and losers among clean coal, nuclear, solar, wind, etc, by direct subsidies. We must sap the Saudis' ability to periodically destroy such investments by having oil prices crash (the rest of OPEC is too greedy for that, but the Saudis play a long game and have the leverage to make it happen -- that the side effects of such undeclared price wars deeply wound Iran, Saudi Arabia's main regional competing power, is a sweetener). Again, directing the income from such a floor-price tax to alternative energy subsidies is NOT ideal (I'd rather see payroll taxes cut deeply), but in any case as long as the whole package is revenue neutral the current recession should be no bar to it, no?

I'm surprised neither the blogger nor the various commentators have mentioned the national security aspects of American oil consumption and the transfer of wealth to the anti- democratic regimes which supply our oil. The direct beneficiaries of the transfer (by far the largest in human history) include countries which fund terrorism directly (e.g., Iran, Saudi Arabia) indirectly (Russia) both directly and indirectly (Venezuela) and historically, though not, perhaps, at the moment (Libya).
Our dependence on these suppliers has hamstrung our ability to have a coherent foreign policy-- witness, for example, our categorization of Saudi Arabia as a "moderate" Arab state and our inability to respond to Russia's transfer of nuclear technology to Iran.
A gasoline tax could, and, by political necessity, would, be very much a voluntary tax, through application system of partial credits and simultaneous reductions in payroll taxes. The revenues, such as they are, could be applied, again through a system of credits, to conversion of our national rolling stock to carbon neutral fuels such as algae based biodiesel etc. or carbon producing, but less dirty domestic fuels i.e., LNG.
Our economic and, hence, our national security demand an end to dependence on foreign oil and the debate must be framed in that context.

The regressive problem of a gas tax hike has been addressed by none other than Charles Krauthammer (I was a little surprised by the source myself). He proposed something called a Net-Zero Gas Tax. Essentially the revenue raised by such a tax would be offset by a corresponding reduction in the amount raised in payroll taxes. Thus it raises one regressive tax and reduces another.

I can see the point to raising taxes on gasoline as a user fee so that the funds gathered from these taxes would be dedicated to road and bridge maintenance and repair. Such a tax increase could also have salutary side-effects such as reducing carbon emissions and reducing congestion as both Professor Becker and Judge Posner argue. I can also see Professor Becker's point that we should delay implementing an increase in the gasoline tax due to the present economic downturn.

What I would also argue for, in due time, is a price floor on gasoline to provide incentives for entrepreneurs to develop alternative fuels. Normally, I would oppose such measures as I am proposing, but the externalities that have emerged from oil are too great to simply let alone. The most notable externality is the political volatility of the Middle East. Since we import significant amounts of oil from Saudi Arabia as well as other Middle Eastern sources supplying other industrial nations with oil, freeing up other sources for us, we must look for ways to disengage from the Middle East. Much of the underlying reason for terrorism is rooted in our involvement in the Middle East to keep oil flowing.

In calculating the full price of oil, we must include much of our military budget. Given those costs, a price floor to encourage the development of substitutes for gasoline would be cost effective over time.

Why is it that almost everyone thinks that the Internal Combustion engine's fuel efficiency is unlimited. The reality is, that the design engineers have just about maxed that efficiency out. If you're going for greater efficiency, one is going too have to invent the perpetual motion machine, develop other types of Prime Movers or radically alter the Transportation Culture and the lifestyles on which it depends.
No easy task.

Now, turning to "Taxation", the low prices we're seeing today are an anomaly. When the Crude prices jump, which they will, the gas prices with additional taxation will be above five dollars a gallon. Now how is this going to help revive a Consumer Based Economy? Other than drive it deeper into Depression.

Àôôòîðó çà÷¸ò, íî ÿ áû íå òàê ïèñàë.

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.

Íó ó âàñ ëèáî òàëàíò ïèñàòü, ëèáî ýòî ñòûáðåíî!

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.

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?

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!

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.

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?

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).

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

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.

Премного благодарна вам. Ваш сайт это прекрасный повод найти приятных и образованных людей, способных к конструктивным обсуждениям и критике. :)

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".

Nice to see so good informations. Very good blog.

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.

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

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.

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?

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)

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)

دردشة صوتية

thanks!!

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.

No chance the gas tax is increased in the next 4 years.

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

Здравствуйте. Не могу разобраться с разделом для темы. Кто сможет помочь?
Спасибо.