Response on Gas Hike-BECKER

A few comments on some thoughtful posts. One of you commented on the most controversial part of my discussion: how the optimal tax to cover pollution and congestion costs is affected when gas prices go up for reasons other than taxes. Externalities are usually taught as being a constant amount per unit consumed, so the optimal tax to incorporate these externalities would be the same, as the comment argues, regardless of how much is consumed in the aggregate. But the assumption of a fixed externality per unit may not be right. An alternative approach assumes that the externality depends only on the level of market consumption. That is the approach I took without an adequate explanation. This assumption seems a better approximation for congestion costs, and perhaps even for local pollution costs. So while I did qualify my conclusion about the optimal tax per gallon possibly being lower with the increase in gas prices, I should have been clearer that this is only a possibility. There is some confusion in the comments between an excess profits tax and a tax, possibly even a progressive tax, on corporate profits. I believe so-called excess profits taxes involve a degree of social engineering that sets a terrible precedent. If a cyclical industry like oil sometimes experiences high prices and profits, and an extra tax is called for then, should the industry not get an extra subsidy when prices and profits are low? Should we do this also for other commodities, like copper and corn? There is more than enough incentive to subsidize the politically powerful-we do not need to add to these incentives. I do believe the evidence is powerful that NIMBY considerations affected not only the building of oil refineries but also of nuclear powered electricity plants, disposal arrangements for nuclear waste, wind power off of Cape Cod, and many other development during the past several decades. Is it any accidents that refineries are so concentrated in the Gulf, and hence refinery capacity is vulnerable to hurricanes, terrorism, and other risks? This is one region where politically it was possible to build refineries up to the 1970's.

Comments

[Joe Merchant]

Wouldn't a "progressive corporate profits" tax accomplish both penalty for excessive profits and subsidy for lean years?

With modern quarterly accounting, this form of corporate profits tax could be revenue neutralized with the corporate customers taxes within less than a year, in the case of oil companies, the "excess profits" could be returned to the general population through federal income tax reduction.

In lean years for the corporations, this would place a larger tax load on the citizens - possibly deepening a depressed spending trend. However, in fat years, it would return some of the windfall to the pockets where it fell from, preventing a consumer spending pullback. I think it is disengenuious to point out that the bulk of the oil company profits come from overseas when domestic retail sales are clearly grossing 50% more than a year ago - without those retail price increases, profits would not be as high as they are.

Setting the sliding scales for a progressive corporate tax would be an interesting exercise, corporations are not "one size for all" like individuals... In effect, current accounting rules already accomplish this sliding scale, allowing net operating loss and zero tax payment for corporations with billions in cash flow. The problem is that the maximum effective tax rate on gross corporate income is not very large, and therefore small incentive to blunt profit spikes.

[Steve]

The policy proposals coming out of Washington DC regarding high gasoline prices are quite discouraging. These range from futile (investigating price gouging and manipulation) to pathetic ($100 rebate) to bad (suspension of the gas tax) to even worse (price controls).

My study of transportation economics leads me to believe that there are policy options available to the US that are infinitely superior to those currently being considered. These options would not only exert downward pressure on gas prices, but also put money in peopleÔøΩs pockets, while reducing traffic congestion, global and local air pollution, road and parking costs, and costs related to accidents. In addition, all this can be achieved without raising taxes, increasing the budget deficit, building new refineries, drilling in environmentally sensitive areas, or replacing SUVs with hybrids.

This combination of benefits can be achieved because the US transportation sector is enormously inefficient in economic terms. In many respects, the transportation sector is the ÔøΩSoviet UnionÔøΩ of the US economy, regularly violating the fundamental micro-economic principle that the price of a product is efficient to the degree that it includes ALL costs in a VARIABLE (or marginal) manner. More than half the total cost of driving is either external (meaning that the cost is paid for by someone other than the motorist) or internal but fixed (meaning that the motorist pays the same price regardless of how much he/she drives). Variable internal costs (those paid by the motorist in proportion to how much he/she drives) make up only about 45% of total driving costs.

Neither external nor internal fixed costs are reflected in the price of driving, so motorists frequently receive a faulty signal that encourages some travel even though the true costs (external, internal fixed, and internal variable) of producing this travel is greater than the benefit. To put it differently, the true cost is more than what the driver would be willing to pay, if he/she were paying full freight. Overall, we would be better off if this marginal travel were not produced and consumed, and the savings spent on other goods and services of greater benefit. Incorporating external costs and internal fixed costs into the price of driving gives motorists market signals that encourage efficient behavior which, in turn, maximizes consumer benefit.

External costs can be included in the price of driving through what are known in economics as ÔøΩcorrectiveÔøΩ taxes. This is the justification of seemingly exorbitant gas taxes paid by drivers almost everywhere outside the US. There is widespread consensus among economists of all ideological stripes that higher gas taxes in the US are justified on efficiency grounds. The problem is political: higher gas taxes mean higher prices at the pump for already outraged driver/voters. Such proposals are political non-starters.

On the other hand, incorporating internal fixed costs into the price of driving can increase efficiency without inciting political opposition because drivers already pay for them. When these internal fixed costs are converted to variable costs, all drivers enjoy incentives to reduce driving of minimal benefit. As a result, aggregate miles traveled and gasoline demand decline, putting downward pressure on gas prices. In addition, motorists who do reduce their driving get to pocket the cost savings that result.

This situation is analogous to flat-rate water use fees. If consumers pay by the year and not for the amount of water used, no one faces any incentive to fix leaky faucets, to sweep the driveway instead of hosing it down, or to avoid over-watering the lawn. As a result, everyoneÔøΩs water usage goes up and aggregate consumption goes way up, along with water rates. When fees are changed to per-gallon basis, everyone has an incentive to use less resulting in lower water consumption and prices.

There are two areas in the transportation sector where internal fixed costs can be converted to more efficient variable costs: auto insurance and ÔøΩfreeÔøΩ employee parking at work.

Currently, car insurance is a fixed internal cost, sold on an ÔøΩall you can driveÔøΩ per year basis. William Vickery, who was awarded the Nobel Prize for Economics in 1996, proposed an alternative which bases premiums on miles driven in addition to existing rate factors such as age, gender, DUIs, accident history, location of residence, credit score, etc. Within any rating class, the less you drive the more you save, so every driver enjoys an incentive to reduce the number of miles they travel. Each driver decides which miles provide the least benefit and can be reduced with minimal pain, while preserving the option of driving when the perceived benefit is great.

ÔøΩFreeÔøΩ employee parking at work is similarly a fixed internal cost, although mostly invisible to the employee. Currently the compensation package for almost all US employees includes ÔøΩfreeÔøΩ parking at work. Of course, providing this parking is not free but has a cost of $50-100/month that reduces the employeeÔøΩs take-home pay. Effectively, the employee pays for his parking spot regardless of whether he drives and parks or not. The solution to this distortion is Parking Cash-Out. This means that commuters who are offered subsidized parking are also offered the cash equivalent if they use alternative travel modes. Each commuter decides how to get to work, but those who choose to walk, bike, carpool or ride transit can now pocket the parking cost savings that occur.

Just how big are the effects of these two proposals? It is estimated that a 6-cent per-mile auto insurance incentive would reduce total miles traveled by roughly 10%, while Parking Cash-Out typically reduces single occupancy vehicle work commuting by 10-30%

The beauty of these proposals is that they are truly ÔøΩwin-winÔøΩ, in that the increase in consumer welfare is truly a net economic benefit, not merely a transfer from one group in the economy to another. In addition to reducing the price of gasoline, and putting money in peopleÔøΩs pockets, these proposals would also benefit motorists and non-motorists alike in numerous ways: Collision costs, injuries and deaths would be reduced because all drivers would be traveling less and getting in fewer accidents, and crash-prone drivers would face particularly high per-mile incentives. Car ownership would be more affordable, as insurance is converted from an ownership cost to an operating cost. There would be less traffic congestion, especially at rush hour due to Parking Cash-Out; less global and local air pollution; and reduced road and parking costs. Low-income drivers would be able to purchase only as much insurance as they need, no longer forced to choose between driving uninsured and buying prohibitively expensive unlimitedÔøΩmileage coverage.

As you can see, the US does enjoy policy options that are superior to those being offered by politicians and in the press. Do you know of any policy-makers who would be interested in these ideas?

If you are interested in transportation economics, please see www.vtpi.org

[Anonymous]

thanks for your post.perhaps you will like ed hardy

[Anonymous]

fhd

[Anonymous]

dfhhhhhhhhhhhhhhhhhhhhhhh

[Anonymous]

Thank you, you always get to all new and used it
شات صوتي

[Anonymous]

العاب
___
ÿ¥ÿßÿ™

[Anonymous]

ÿßÿ®ÿ±ÿßÿ¨
___
دليل

[Anonymous]

ÿØÿ±ÿØÿ¥ÿ©
___
صور

[Anonymous]

thanksss
ÿ¥ÿßÿ™ ŸÖÿµÿ±
--
دردشة مصرية

[Anonymous]

Greeting. There is a great deal of difference between an eager man who wants to read a book and the tired man who wants a book to read.
I am from Angola and also am speaking English, tell me right I wrote the following sentence: "Queen comforter set has products in comforters like comforter sets for nature inspired comforter sets queen size, sheet sets for nature inspired."

:o Thanks in advance. Willa.

[Anonymous]

Thank you, you always get to all new and used it
ÿ¥ÿßÿ™

دردشه

[Anonymous]

دردشة برق

دردشة الخليج

[Anonymous]

thanks to tell me that,i think thats so usefully----
tiffany jewelry
links london

[Anonymous]

Greeting. The creative is the place where no one else has ever been. You have to leave the city of your comfort and go into the wilderness of your intuition. What you'll discover will be wonderful. What you'll discover will be yourself.
I am from Mauritius and learning to speak English, tell me right I wrote the following sentence: "Now you can clean your home faster than ever, if you use some of the hoover products like hoover turbopower vacuum cleaner or hoover vortex v vacuum cleaner."

Thanks :-D. How a vacuum cleaner works.

[Anonymous]

Hello. To do anything truly worth doing, I must not stand back shivering and thinking of the cold and danger, but jump in with gusto and scramble through as well as I can.
I am from Saudi and now teach English, tell me right I wrote the following sentence: "In design sometimes one plus one equals three."

With love 8), Beautiful islands in the kitchen.

[Anonymous]

I found your blog on google. I think your blog is the best :).
I am from Somalia and too bad know English, tell me right I wrote the following sentence: "I am speechless in a good way over the design of this super kick ass bag."

With respect :o, Design handbags.

[Anonymous]

Hi all. I'm glad I didn't have to fight in any war. I'm glad I didn't have to pick up a gun. I'm glad I didn't get killed or kill somebody. I hope my kids enjoy the same lack of manhood.
I am from African and learning to speak English, give please true I wrote the following sentence: "Stock market charts, free technical analysis, trend forecast on your charts we can also display buy sell signals and highlight in out positions."

Waiting for a reply ;-), Ayisha.

[Anonymous]

شات الشلة

دردشة تعب قلبي

[Anonymous]

ÿ¥ÿßÿ™ ÿØŸÑÿπ

شات الود

[Anonymous]

شات حبي

شات الحب

[Anonymous]

tiffany jewellery
ugg boots

[Anonymous]

links of london
abercrombie and fitch

[Anonymous]

very thanks for article

[Anonymous]

Great article, I had a good laugh!links of london
tiffany jewelry