I am in favor of both a proposed (but won't go anywhere) 50-cent increase in the Federal gas tax, and a surtax to fund the Iraq war.
I'm not a fan of higher taxes, but I'm less a fan of defecit spending (Iraq War, and in particular Bush's use of supplemental budget requests to hide the true hit on the Federal Defecit), and I think a gas tax is a reasonable proposal to address the "gasoline over-consumption is harming the environment" furor. A much more reasonable proposal than raising CAFE standards, or other policies designed to make gas cheaper. Simple Economics says people consume relatively more when things are cheap, and relatively less when things are expensive (depending on the elasticity of the good).
The Federal government continuing the myth that present defecit spending does not matter is not good for anyone. That the Republicans would push it is something I'm ashamed of. If something is important enough to do (as every hawk will tell you Iraq is crucial), it's important enough to pay for. Money has to come from somewhere.
Tuesday, October 02, 2007
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9 comments:
Good post; makes a lot of sense.
I'm definitely on the same page with you when it comes to CAFE standards. There's a lot of other better solutions out there for our government to implement than to simply just hike them up and not deal with the problem at the source. I do some work with the Auto Alliance, and I can tell you its reached the point where the industry is actually supporting an increase in standards - you need to check out DriveCongress for the details. Like I said, the liberals in Congress think the solution is just to pass the buck and hike them up all the way. But we need to support something thats not going to hurt us down the line.
The biggest problem with things like the CAFE standards is that it's loophole-ridden. The biggest contributing factor in gasoline consumption is.... consumption.
CAFE affects gasoline consumption in a marginal way at best. But if you really want to limit consumption, make it more expensive. I think you'll find (1) consumers choosing more efficient cars, and (2) car companies feeling more pressure to make said cars.
By addressing CAFE only, you don't even think about the person who buys an efficient car, then idles it for an hour while eating lunch to run the A/C.
I really don't know much if anything about this stuff, but as a consumer, those who can afford to let their car idle for an hour while eating lunch to run the ac, or those who buy hummers and the cars that take a lot of gas, will still idle and buy big, because they can. Those of us who are barely getting by with our small ten gallon tank cars will be the ones that won't be able to drive at all.
And as for buying more efficient cars, again, they make them, but the prices are so only the rich can buy them.
They need to work on a solution to make both things affordable to the average blue collar worker, who would actually use the more efficient car for it's purpose and not as a "cool new trend." Especially in this state.
You're right, of course. Increasing the price will drive some people out of the market. For others, it will limit their consumption. For others, it will make no difference.
That's unfortunately the way limiting consumption by increasing the price works. I'd love to live on an acre on the shore of Tahoe, but the price is too high, so I can't.
I have heard people say we should put a severe tax on gasoline, but use the revenue to fund a fixed ammount of gasoline (say, your first 25 gallons a month are no charge, and every additional gallon is $5 each). That's one possibility.
Another is that by making gas really expensive, you will finally give people the incentive to use things like mass transit, or carpooling.
There are alternate forms of transportation out there, but none is as convinient or as cheap as driving yourself around, so few people will choose to use it unless forced.
My roommate is 28 years old. He briefly owned a junker car, but never used it because he's never had a license to drive. He walks most places nearby, takes the bus to school or if it is cold, and has friends with cars when the situation calls for it. It is possible to get by without a car... and more people would do so if they had to.
Hybrids are currently expensive, because it's a new technology. The real innovation comes when someone can find a way to get high-efficency (or electric-only) cars to people at a price they can afford. I think it will happen, because the market is there. The market will be all the more obvious if gas were much more expensive.
$0.50 per gallon is not a huge increase in my book. It's not enough to effect these changes. Why? Currently, I put about 25,000 miles a year on my car. At 28 mpg, that's a little over 900 gallons per year. At that rate, the proposed tax would cost me $446 each year, or about $8.50 a week. Could I cut $8.50 out of my spending in other areas each week to adapt to higher gas prices? You bet, so this is unlikely to change my consumption of gas.
In some cases, having a car is a necessity. Think of the single mom with toddlers and grade schoolers not old enough to ride the bus alone. Having a small reliable car as opposed to a large hummer is more comparable to having a small one bedroom apartment as opposed to a house on the beach at Tahoe. Different then not being able to afford driving anymore.
Does that make sense?
Finally, a tax increase is not really a bad thing. I am not opposed to the tax increase, I am opposed to the $250,000 a minute profit the gasoline companies are making at the moment. Taxes normally go to a needed cause. But this price hike for profit is getting out of control.
http://www.washingtonpost.com/wp-dyn/content/article/2007/04/26/AR2007042600592.html
From the above link: Exxon's Profit Surges To First-Quarter Record On Higher Gas Prices
By Joe Carrol
Bloomberg News
Washington Post
Friday, April 27, 2007; Page D02
Exxon Mobil, the world's biggest oil company, said profit climbed 10 percent to a first-quarter record after higher gasoline and diesel prices increased refining profit.
Profit rose to $9.28 billion from $8.4 billion in the comparable period a year earlier, the Irving, Tex., company said in a statement yesterday. Revenue fell 2 percent, to $87.2 billion.
http://taxprof.typepad.com/taxprof_blog/2005/10/gas_taxes_excee.html
I also found this link above to a tax prof blog interesting. This is an exerpt from it.
Due in part to substantial hikes in the federal gasoline excise tax in 1983, 1990, and 1993, annual tax revenues have continued to grow. Since 1977, governments collected more than $1.34 trillion, after adjusting for inflation, in gasoline tax revenues
Again, I don't understand all of this stuff, but I do understand that as a consumer, I will be paying for the gas increase for myself, plus the post office's, the retailers, the food industry, etc. We have all seen it, the gas price goes up, they loose profit, so they increase the price of their products as well, the stamps and services, the food we order or buy since it is delivered, the everyday items we buy that are also delivered to the stores.
I am up for ways of less consumption. So for now, I will carpool when I can, and walk when I can. But mostly go out less often. Right after I finish replacing my light bulbs with the funny looking but saves money bulbs. I just started getting a pack each payday. Only half replaced so far. Thanks for the interesting and great discussion Dave.
But there are alternatives to having a small, one-bedroom apartment, that are often even cheaper. I have a roommate, and it saves me $100 a month.
There are a lot of areas (though I can't speak intelligently about the specific needs of single parents) where we think we can't possibly cut back... until we do. We often start with the assumption that we have a car, and plan our life around it. Does the single mom with young children know no one who could ride the bus with her children? A fellow parent, a friend, a family member? Why must she do it all herself? I think there are options beyond (1) drive, or (2) ride the bus to school with your kids. They may be less desireable, as we so prize self-sufficiency. But that doesn't mean they do not exist.
Talking about the profit the gasoline companies make is a whole other can of worms.
The truth is, I'm completely fine with the profit they make. They sell a very valuable product that is in demand all over the world. I'd expect them to make a lot of money. It's that profit incentive that keeps them pumping oil, and supplying gasoline to us.
The only spot where I would pay attention is if they are engaging in illegal collusion, or other market-distorting behavior. Because there are VERY high barriers to entry (regulatory, and financially) into the market, it will tend to have fewer players. And fewer players means that monopolistic behavior is much more likely.
I don't have the recent numbers in front of me, but I believe the profit margin (the % of the price of gas that turns into profit) on gasoline is similar to that of Wal-Mart. Both companies make lots of money, not because they jack up their prices, but because they make a little bit of profit on a VERY HUGE volume of sales. They make money not by gouging you, but by selling gas to 2-4 billion people.
Exxon makes record-breaking profits simply by being a very large company.
Remember - the beginning of all of this is Washington trying to legislate change and put the burden on either consumers and manufacturers, but in either case the change created won't be that great. CAFE only effects cars not yet built yet so will have no effect on those already on the road. Additionally, cars make up 20% of emissions problems. While a tax on all consumers might have a wider impact, we already discussed the negative implications it can have. I think the smartest approach is one that tries to balance all these ideas and doesn't rely on heavily leaning on one.
I don't have a problem with Washington putting the burden on consumers and manufacturers, per se. The problem is one of externalities. As I (or a manufacturer, or anyone else) do things that cause pollution, I do so in part because the cost of polluting is lower than the cost of not polluting.
Polluting, though, causes negative impacts for society at large that are not reflected in its cost to me. If I throw a bag of trash out the window as I drive through an unfamiliar part of the city, it may be easier for me than carrying it to the dumpster when I get home. But it also makes someone else's neighborhood look worse.
Part of government's rightful place is to find a way to "internalize the externality." By fining me for littering, they make it more costly for me to toss my garbage out the window (in theory) than to carry it to the dumpster. By fining me for parking in a handicapped space, they keep it available for someone who has a proper permit.
I think of a gas (or oil, or carbon) tax the same way. It's a way to reflect in my own personal decision-making the true cost of my activity to society.
It's by putting a general burden on me that government allows me to find the way to best minimize that burden in my life. I don't like CAFE because it's too targeted. Government is not so efficient at creating specific guidlines to follow - they prove costly, and full of loopholes. But creating a uniform, predictable burden on what they actually (supposedly) want to limit - instead of a secondary link to it - they can actually effect change.
But they don't like to do that, because then consumers can blame them for the higher cost. Instead, they try to do things that sound as effective as possible, while actually having a surprisingly small impact.
The sad truth is that unless there is some bite, people generally don't want to change. The bite can be fear of future change, as with the oceans-rising-to-destroy-the-world hype, or it can be practical, like expensive gas.
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