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Is it Time to Add a Significant National Gas Tax?

This article was written by in Economy. 24 comments.


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At the pump, gas prices are “low” now. Remember last May when Chrysler was offering a $2.99 gas guarantee while the price per gallon continued to climb towards $4.00? It seemed like a good deal at the time, but I was quite skeptical, thinking prices would eventually return and that Chrysler must have known that in order to offer this “deal.” Other people considered the era of gas prices lower than $2.00 to be over. Today in New Jersey, gas prices are closer to $1.50 per gallon.

Some experts believe that right now, before consumers begin taking advantage of lower gas prices and buying large SUVs and Hummers again, would be a perfect time to enact a national tax on oil, natural gas, or coal, far up the supply chain. It’s quite possible that this tax would be passed down the line to consumers in the form of higher prices, perhaps amounting $1 per gallon.

The tax would be an incentive for the industry to increase the pace of research and development in alternative, cleaner sources of industry.

ExxonMobil is looking forward to this tax if the other choice is to cap greenhouse gas emissions. I find it unlikely that Congress would pass this energy tax, but anything can happen.

When gas prices were higher last year, it corresponded with a change in driving and consumer behavior across the country. The threat of a recession and the general economic sentiment might have contributed as well. Will keeping the gas price high prevent a return to large cars and trucks even when the economy improves?

Published or updated January 12, 2009. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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Luke Landes, also known as Flexo, is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about him and follow Luke Landes on Twitter. View all articles by .

{ 24 comments… read them below or add one }

avatar tom

Yes, it is. Should have been done after 9/11

Thomas Friedman wrote about this in his book “The World is Hot, Flat and Crowded”.

He argues that a significant gas tax would dramatically increase the need (and funds) for alternative energy as stated above, but further more, it would immediately cause Americans to decrease their energy consumption, as we saw this summer, helping the environment and hurting terrorists.

Decreasing energy consumption, specifically oil, does one thing very quickly… it stops the flow of money into Anti-American countries that control oil production. You’re seeing it now with low oil prices (which is only a byproduct of the economy and prices will go back up), Russia, Iran, Saudi Arabia, Venezuela, are all cutting programs. We can hit the terrorists where it hurts them the most… oil revenue.

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avatar Greg

I agree that the time to slap on the fuel tax and regulate gas guzzlers is when the public is aware of the issue and prices are low (actually, there was the public will after the first oil crisis).

However, part of what is keeping the economy afloat right now is low gas prices.

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avatar thomas

Really? At this particular time it’s a good idea to INCREASE taxes? That is the definition of insane. Raising taxes to push agenda items is not what needs to be happening. The only thing that will be achieved is more pressure on the consumer to pay for the excessive spending and government agendas.

Increased prices of gas hurt many small businesses, especially those in the delivery industry. Small business owner’s are the last ones we need to negatively impact.

Alternate energy and fuels should not be forced upon society. Let the free market decide how they want to live and what products to purchase.

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avatar TheMightyQuinn

Since gas taxes are inherently regressive, why would anyone want them? I believe higher gas prices causes commodity inflation (if that’s the right term) but wages will stay the same. Again, why would anyone want this? Also, FDR did something similar during the great depression by raising taxes, how did that help businesses hire more people?

I don’t drive much (take the bus), so this would have little impact for me at the pump, but it WILL (and has, last year) impact me at the grocery and clothing stores.

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avatar Greg

The tax issue aside, the companies that justified raising prices because of $4.00/gallon gas have not turned around and reduced prices now that it has dropped.

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avatar TheMightyQuinn

Food prices have been dropping since the last quarter `08, and are expected to drop even more this year. (Food to gas prices are obviously not a 1:1 ratio.) It will probably take a little while for prices to drop as stores try to squeeze what every they can from us while competition forces them slowly down.

See:
link 1, link 2, link 3

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avatar Miss M

Actually part of the reason they need to increase the gas tax is due to rising fuel efficiency. A prius and an SUV cause about the same amount of wear and tear on roads and bridges, but the prius is paying less in taxes because of its better fuel efficiency. Since the cost to fix the roads isn’t going down, the tax has to be increased. Of course taxing gas is an indirect way of paying for roads, so maybe we should switch to a tax paid on miles driven system?

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avatar Chris

#7 has a good point. I hadn’t thought of that. After all, government can’t have a revenue decrease, though. God forbid government actually contract. :)

My point is if you just want to really illegalize/black market something, tax it to death. That would appear to be the raising of a gas tax strategy. I mean, they embrace this with nicotine, with luxury items (in the past); why not gas?

Besides, if the country could embrace this, maybe it would embrace a marijuana tax. :)

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avatar beyondgreen

I think it would be a huge slap in the face of the American consumer to penalize them for conserving which is what a higher gas tax now would equate to. This past year the high cost of fuel has seriously damaged our economy and society. What we really need to do is get off oil and utilize other available sources of energy. It would cost the equivalent of 60 cents a gallon to charge and drive an electric car. The electricity to charge the car could come from solar or wind generated electricity. If all gasoline cars, trucks, and SUV’S instead had plug-in electric drive trains, the amount of electricity needed to replace gasoline is about equal to the estimated wind energy potential of the state of North Dakota. Why don’t we use some of the billions in bail out money to bail us out of our dependence on foreign oil? This past year the high cost of fuel so seriously damaged our economy and society that the ripple effects will be felt for years to come. Why not invest in setting up some alternative energy projects on a national basis, create clean cheap electricity, create millions of badly needed new green collar jobs, and get out from under our dependence on foreign oil. What a win -win situation that would be. There is a great new book out I just read called The Manhattan Project of 2009 Energy Independence NOW by Jeff Wilson. I highly recommend this book for anyone interested in alternative energy. http://www.themanhattanprojectof2009.com Oil is finite, it will run out one day in the not too distant future. We need to be preparing for that day now.

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avatar Yana

Gas prices affect my driving habits more than my choice of vehicle. I wouldn’t want a gas hog regardless of the price of gas, but neither would I want a vehicle like a Prius regardless of the price of gas.

The price of gas should be lower. Raising the price of gas simply means more money allocated for gas that could have been saved or spent on something else. When I am gouged on one thing, I overcompensate somewhere else.

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avatar Mark

A tax like this is a slippery slope, similar to the taxes on other “illicit” items such as liquor and cigarettes. The question is when does the tax masquerade as an angel, but actually do the devil’s work, and when does it really do justice?

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avatar the weakonomist

This nation was founded on the rejection of taxes. Simply because gas is cheap does not mean the government should now tax it.

Taxing my gas so the fat government can award contract to tiny companies that will only get bought and shut down by Exxon is not the way to drive innovation.

I’m not a policy expert, but the country will not unite behind a green initiative until there is a financial incentive to do so. And no, taxpayers don’t want to pay for it from their gas taxes.

If you want to tax my gas, then use the money to fix my roads and reduce congestion.

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avatar Andrew

I completely agree with Miss M. Cars are still tearing up our roads, but the governments are getting less revenue because of increased efficiency. To maintain our roads we must increase consumer gas taxes to compensate, as much as it pains me to say it.

I do not agree with any kind of mileage tax because of the cost of implementing such a system vs the already established tax systems. Consumer gas taxes as they are applied now appropriate a mileage tax well enough. Just increase the current tax and be done with it.

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avatar Sara

I was just going to say that I found Friedman’s arguments compelling and I think I agree with them (although I haven’t read his book, I’ve just been reading his column.

There have been several instances of taxes being constructively used to influence public behavior in ways that can be measured in further cost savings.

Most people who oppose this tax seem short sighted and simply don’t want to pay more for gas now, and seem to completely miss the point that the gas tax is attempting to influence our fuel consumption in a way that will save tax dollars down the road. If implemented correctly, a gas tax could be very successful.

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avatar Compounding

Bad idea. The Federal government needs to reduce its scope, not increase it. And what is a state like Indiana going to get out of this? Our road projects are paid for the ten years. So, our state was more responsible than other states and the feds, but we have to pay the tax? Bad idea.

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avatar T
avatar Matt SF

We can debate everyone’s personal likes/dislikes, and how a gas tax would subsequently impact their bottom line until we’re all blue in the face. In the end, most tax debates are generally opposed by those who are negatively impacted.

If you drive a Hummer or less than 20mpg SUV, this tax will hit you hard, it’s a newer version of a luxury tax.

Don’t like it, buy a 4 cylinder Accord and write a letter to GM each week for the next 10 years saying you want a Tahoe Hybrid that gets 40mpg.

Fact is, a gas tax is one of the few ways we can begin to pay down the deficit and help the energy independence movement. Not to mention, we begin to deal with that little carbon emission problem we hear about, but never seem to really do anything about. Except, keep debating it.

If the gas tax is $1/gal, I personally feel that is far too costly. Maybe something like $0.1/gal. However, since we American’s complained so much about $3-$5 gas, try going to other parts of the civilized world and find out what they pay. Then $4/gal will seem like a discount.

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avatar fathersez

My country seems to have imposed something like this. The pump prices are higher than what it should be with current oil prices. My concern is that the “taxes” would not be put to something specific like green energy. Instead it would go into a pool and get lost in the maze of Gomen expenditures and general waste.

Regards

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avatar farkel

It’s past time we instituted a significant gas tax. Ideally, it would be flexible so as to stabilize the price. When the price of gasoline plunged from $4/gal to $1.50/gal, consumer preference swung back to SUVs and trucks. Price is the strongest and most immediate motivator for energy savings, and although a price increase it’s painful, it’s necessary. Unless the price is significant and stable, the entire auto industry in the US is hostage to OPEC and oil prices. If the rise in price is restricted to gasoline, it will return diesel fuel to a parity position, and should not raise other transportation costs.

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avatar randy

Yes, add a new tax because I am sure the price of gas will stay below $2 a gallon. Is it so hard for you to figure out that the only people this hurts is the working poor. At 3-4 dollars per gallon this directly takes food out of my families mouth. (and I drive a small chevy and use low wattage light bulbs and anything else you can imagine to save money)

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avatar TheMightyQuinn

@ Randy:

You’re completely right. Sometimes I think these people calling for expensive gas just want to get us poor slobs off the roads.

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avatar Yana

It’s not only getting the poor slobs off the road, but:

“When the price of gasoline plunged from $4/gal to $1.50/gal, consumer preference swung back to SUVs and trucks. Price is the strongest and most immediate motivator for energy savings” -

This manipulation is basically taking away choice, if consumers prefer SUVs and trucks. I am totally not motivated to change my choice in vehicle, and the only thing that happens to me when the price of gas goes up is that I am exploited. I’m not going to pay money for a vehicle that I do not like. I drive a Subaru Forester, but if I wanted a Cadillac Escalade or Hummer, I ought to be able to have one without being further punished beyond their gashoggery. The economy will suffer in other ways if gas prices rise.

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avatar Scott

The government could also start filling up the petroleum reserve while gas prices are low again. Our family has a Prius and an SUV. We drove the Prius more this past summer as gas was $4.50 and now drive the SUV a little more often as gas is under $2.00.

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avatar Jeff

Though I tend to wary of government plans to “modify” society, I do think the Gas Tax is a necessary evil. We have to change American habits and the sweet spot seemed to be around $3.50 to $4.00 a gallon. For this plan to work all money from the gasoline taxes should be required by law to be spent on:

1. Roads, rail, buses, bridges and infrastructure.
2. Alternative Energy

Also I believe that the concerns of this regressive tax hitting the poor the hardest are of course very valid, but the government could return the money to the lower income brackets in a payroll tax cut, or re-inject it into the economy.

The only difference is all the money collected goes to Uncle Sam instead of Iran, Venezuela, Russia, etc… That way lower income people can actually save even more money by driving less and getting the added benefits of payroll tax cut and better economy. The rest of us will benefit by oil independence, alternative energy (which creates Jobs and taxes here and not the middle east, less traffic and lower debt, better infrastructure, etc, etc…

Seems like a no brainer to me.

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