The “free market” does not work for petroleum products. We are at or near “Peak Oil”. The “Market” can no longer expand to meet demand. Since prices are sure to rise tax or no, this vast revenue stream (we burn 45 million gallons of gasoline a day, 60% of which is imported) leaves our country and into sometimes not so friendly hands. If we tax ourselves to reduce consumption, the money stays here so we can spend it on ourselves. If we give it to the Arabs, it’s gone forever. The National Debt and the Budget Deficit are at record levels. A new tax that has the side benefit of reducing petroleum imports makes sense. “Low Income” people could file for relief on their Federal Income tax. When we import over 60% of our oil, we NEED to instill some pain at the pump. Gasoline demand has increased 2% so far this year over last year. There is a lot of whining at the pumps, but no real pain. $6/gallon gas, $95 fill-ups, should reduce gasoline demand somewhat…People will spend their last dollar on three things and gasoline is one of those things…Let me know when the high-school parking lots start to thin out…
While I agree with you in principle, I do have to point out that we do not get the vast majority of our imported oil for “the Arabs,” but we do get lots of oil from “the Canadians.” Just a clarification, it doesn’t really change the conclusion.
LOL, my daughter’s high school parking lot looks like a BMW dealer’s lot, it might take more than $6/gallon to thin that place out (the kids already pay about $50 per year for a parking permit, and most of them live within about half a mile of the school.)
Interestingly, this post was ported over, but only a few selected replies. I noticed that my reply was not posted over, but several replies to my original reply were. I’m sure some readers are a little confused about some of these relies and are wondering what they are talking about. So I will try to put in the gist of my original reply here.
The price of gas is determined by supply and demand. It always has and always will. Adam Smith detailed this in his book “Wealth of Nations” over 200 years ago. He has never been proven wrong. When people accuse someone or a group of someone’s of manipulating or controlling prices, it is not the prices they control or manipulate, its either the supply or the demand, or both.
The oil companies have been able to partly control the supply because the government allow so many mergers in the 90’s. Both parties had a hand in this. After Katrina, the equations for supply changed dramatically. There were fewer refineries after. Before the hurricane, the cost of shutting down the excess (in the oil companies view) were higher than keeping them open, but after, there was no incentive to reopen all of them.
The oil companies do not directly control demand, we did that to ourselves. From the 70"s to 1996, the CAFE (corporate average fuel economy) dropped every year. The result was a steady decrease in the price of gas. Starting in 1997, the CAFE slowly started up and picked up speed after 2001. The price of gas started up after 1999. After Katrina, it really skyrocketed. The price of oil on the world market contributed to this as well. A small decrease in OPEC’s output did this.
Now to my point. Oil companies a raking in a windfall because their costs have not gone up as much as the market price of gas. Some of their costs for the higher price of oil is off set by efficiencies of production at fewer refineries. An increase in the gas tax at this time would not significantly change the cost at the pump. it would come at the expense of oil company profits.
Everyday, the oil companies calculate the cost of producing a gallon of gas for each production level. The things that go into this calculation include all the costs of operating the refineries, storing the product at various stages of production, salaries, transporting and handling, etc. If they produce less gas, it costs more per gallon.
They also estimate how much gas will be sold per day at each price point. The higher the price, the less gas they will sell. These two calculations are plotted on a graph and the difference between the cost and price is the profit or loss. Somewhere on the difference curve is the highest profit for the day., and that is where the production levels and price is set. Each oil company has to do this independently and hope their competition draws the same conclusions. And they usually do.
Adding more tax does effect the equation, but it is not a direct addition to the price. The price could stay the same, or go up by less that the tax, same as the tax or more than the tax. In times of high profit, it is most likely to not go up significantly. The highest profit price for that day usually will not move significantly, unless the tax increase really cuts into the profits to the point of almost wiping them out.
To pick an arbitrary tax increase could have negative effects on the economy, but if the government did the same thing the oil companies did, adding a curve for various tax rates, the government could maximize their tax revenues, without putting the oil companies out of business. The could also control the price at the pump somewhat and encourage people to move to more to more efficient vehicles without massive disruption of the economy. The excess revenues could go to improvements in the infrastructure so gas is not wasted in traffic jams.
To further encourage the move to more efficient vehicles, the states could start basing their annual registration fees on the fuel requirements of the vehicle instead of the residual value of the vehicle. Starting with new vehicles, the fee would be graduated with the most fuel efficient vehicles paying the smallest fee and the fee going up for the excess fuel it uses. This would be paid annually for a fixed number of years, then dropped to the minimum when the vehicle has little life left and is probably owned by a low income person of family.
BTW, contrary to popular belief, providing money to cover operating costs of the government is not the primary intent of most taxes, it is the secondary intent. The primary intent of taxes is to control peoples behaviors. Only the income tax is primarily for raising money for the government, and some of the exemptions allowed are for controlling behaviors, i.e. charity giving.
Yes indeed, Canada & Mexico are our biggest suppliers, but they don’t set the price. OPEC, controlled by Saudi Arabia, determines the “market” price. We need to get serious about reducing demand of a product we don’t control. A punitive gas tax works. Vehicle mileage standards need to be raised too…
If we keep simply printing dollars to pay for our oil, one day soon those dollars won’t be worth anything and Americans savings will be wiped out. Never in history, NEVER, has printed paper money held its value very long…The people who control the printing presses just don’t know when to stop…
Of the top five countries that the US imports its oil from, three of them, Saudi Arabia, Nigeria, and Venezuela are neither politically stable nor friendly to the US. No one country produces as much oil as the US imports.
As for those other countries in the ticking time bomb/powder keg known as the Middle East (Persian Gulf), they’re selling all they can to Europe, Japan, China, and India. If something happens to stop or significantly cut the flow of oil from the Persian Gulf, those countries will come begging and bidding to Canada, Mexico, Nigeria, and Venezuela.
Mainly because every effort the government makes to try to control the economy always has side effects which make it worse:
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Price controls cause shortages of the controlled product.
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Minimum wage controls cause job shortages.
Second, it violates human rights.
If you think we are waging wars to provide for oil, you need to come back to the planet earth.
If there was no oil in Iraq, there would be no U.S. troops in Iraq…
“They also estimate how much gas will be sold per day at each price point. The higher the price, the less gas they will sell. These two calculations are plotted on a graph and the difference between the cost and price is the profit or loss. Somewhere on the difference curve is the highest profit for the day., and that is where the production levels and price is set. Each oil company has to do this independently and hope their competition draws the same conclusions. And they usually do.”
Not true…ALL of our domestic oil companies are operating at 100% production at all levels. To fill the demand, they must buy both crude oil and refined products from sources they do not control. The prices for these products are set by a cartel, not the free market. Domestic oil companies set their prices based on these arbitrary numbers, not their own production costs which tend to be MUCH lower. Hence, the “obsene profits” the oil companies enjoy today.
As good Capitalists, we have been taught to let price control demand. But in the case of oil and other resources with limited supplies, this means that eventually only the rich will be able to enjoy the benefits these resources provide even though the raw product belongs to all of us…
We here in the United States still have the least expensive gasoline in the world. If you travel outside the US, you will experience prices equal to $2.00 or $3.00 per liter, that would be roughly $8.00 to $12.00 per gallon. Most of this difference is tax. What this forces is smaller more fuel efficient autos and in the case of Brazil the availablity of ethonal as an auto fuel. The taxes collected are use to finance mass transportation and/or finance the government.
I am not in favor of any tax that is imposed without a clear purpose. If any tax were to be imposed on gasoline, it should be used for two projects and only two projects:
- Alternative fuels and the manufacture of thise fuels. Corn based ethonal is not a long term solution. Ethonal is still a good fuel, but there are other parts of the corn stalk that can be processed into fuel other than the kernel.
- Mass transportation. We must improve our grown based mass transit systems. I see that rail has served this country well in the past and can be called upon to serve us again. Many rail right of ways still exist, so the activity to re-establish the bed, lay track and establish convienent schedules can be done. This would also create jobs in many sectors of the economy, from manufacturing to service.
We don’t need a per gallon tax, we need a tax based on engine displacement. High prices for gas seem to have no effect on the tendency for the macho idiots who have to have a V-8 engined truck to just drive to work. If that huge engine cost them a large fee every time they bought their plates you would soon see more small diesels and small engined cars being purchased. The 0-60 under 10 second crowd needs to slow down. Who needs to accelerate into the next traffic jam anyway? Most four cylinder cars can top 100 MPH. That’s over any safe speed limit I know of.
Our oil companies are not operating at 100% capacity all the time. The cartels do control supply of the raw material, oil. Oil is in limited supply and its the limited supply that causes the price of crude to rise. The price is set by buyers bidding for the limited available oil.
The price of the crude goes into the daily equation for calculating the price of oil. Sometimes the oil companies miss the mark, last weekend was an example. The oil companies choked the supply before the labor day weekend, the price rose dramatically in the week before the holiday. They ended up with so much gas that the price of gas actually dropped during the weekend and quite a bit since.
Here is how Costa Rica does it…
Import Duties on cars. (all cars are imported)
1200cc or less, no duty.
1.2L to 2L, 100% duty
2 to 3 liters, 200% duty
over 3 liters, 400% duty.
Not very many V8 Mustangs in Costa Rica…
The proposal panelizes rural folks in a system that already makes too many transfer payments to urban centers. My parents have been paying for the NYC mass transit system for years, but my mom has not taken any rides on it since the early 1950s. It is no wonder that rural America is dead.
Adding more tax to gas only sends more money to Wash DC where they waste it and it hurts the less-advatanged.
The only real solution is for individuals to take responsibility for what they use, since the cost comes out of their pocket. We’ve been on notice since the 1970s gas shortage yet people think they have a god-given right to $1/gal gas just because it comes otu of the ground (yet we’ll spend $4-5 on a cup of coffee and think nothing of it…save that money for gas if it’s the cpst of gas is that big a deal). The price of gas will only go up. People need to put themselves in a position, as much as possible, to be able to weather rising costs. That probably means plannming and consolidating trips, not buying gas guzzlers just because the monthly payment seems cheap, and doing what you can to conserve (car pooling, etc…all the stuff we hate). We really don’t have much else as a lever to control our own personal costs except what we can directly control, our own use. If we quit buying gas guzzlers, Detroit and now Japan would quit making them. Honda Civics, back in the 70s I think, used to get 52 mpg now they brag in their commercials about their new hybrid that almost gets that much. Sure they were roller-skates but the issue is, it was doable 30 years ago. Much more progress could have been made if consumers forced the issue by what they decided to buy. And since this is America, they can decide what they want to buy…just don’t moan about the high price of gas once you decided to buy that new ride that gets 14 mpg on a good day or expect the morons in Wash DC to fix it for you.
Graduated gasoline taxes? Ray, use that MIT brain for a second…Higher taxes might conserve a little petroleum but the oil company profits will still be through the roof. How about an excess profits tax on Chevron and
Exxon? I agree that sooner or later we will run out of oil if we dont conserve, but I hate the idea that Big Oil will be profiting until the last gallon is pumped. How about the “Jackson Plan”? The Jackson Plan means drivers never buy more than $20 worth of gas at one time. If the oil companies start to notice that no one spends more than $20 at a time, then perhaps they will lower the price of their gas.Drivers especially the owners of Hummers might have to fill up twice a day, but maybe the message will still get thru. The Jackson Plan is my current way to fight back
Love your web site. First time “writer”
Will Galeson Oakland Calfironia
YOu have heard of the ADA havent you??? Its mandatory on just about everything including public transportation. Dont know what city you live in that has a bus system w/o ramps but its time you found an attorney and SUED!!!
Does your city have a federal courthouse? Found out where it is; see if you can file yo self and the fees can be waived by a form at the court that you can ask for. If you can ask cartalk to give you our home email address; we would love to help you. We live in the Denver metro area and we have a somewhat active wheelchair commnunity to deal with the ADA nonsense though its still not perfect.
The “Jackson Plan” is a joke, you are just wasting your time. At the end of the day, they have sold the same amount of gas and that’s all they care about.
With a tax, the money stays here and consumption is suppressed.The oil companies make less money, OPEC makes less money. If we do nothing, OPEC will “tax” us and keep the money for themselves.
NOBODY’s going to build a new billion dollar refinery whthout guarantees they will have crude oil to refine. With “Peak Oil” looming if not already here, there is no need (and no money) for new refineries…
If you have kids in school now,by the time they are receiving social security checks there will be 50% more people in the world and with the rest of the world industrializing the consumption of oil will more than double. Since supply is limited the cost WILL rise. The only way to slow the rise is to cut demand. The most efficient way is by raising price. I think the only way that can be done politically in US is to make it revenue neutral. If every penny collected was returned as a rebate that may bring the “no tax” crowd onboard. Do not tax diesel for commercial vehicles (or home heating oil and jet fuel)so cost of farm production and transportation would not be affected. With all the tax money directly returned there should be no negative effect on economy. It would cost virtually nothing to implement. Gas taxes are already collected and IRS could simply give every licensed taxpayer an equal dollar amount as tax credit. You don’t have to wait for tax time to get your money back just file a new W-4 to reduce withholding to account for anticipated credit. Since everybody gets the same rebate it is not regressive. The net effect would be that if you use a lot of gas you will pay more at pump than your rebate and vice versa if you use very little gas. In addition without the threat of cheap oil, alternative fuels could become viable. It would cut our consumption, reduce our dependance on foreign oil, and reduce greenhouse gases. Why not do this? I know there will be the-- it’s unfair “I have to commute long distance” or “I live in rural area with no transit” arguments. Where you choose to live is greatly influenced by economics and with higher gas prices that will affect how far you are willing to drive as well as what type of vehicle you drive. I don’t mean to be callous but sofar all our decisions have been based on cheap gas. We can pre-empt the oil cartels by raising prices ourselves (and return it to ourselves) or wait for them to do it to us (and they keep our money).
Couple of thoughts
- check out my earlier post on $7 a gallon that we’re paying in the UK - we live with it and that and a combination of other fuel duty such as higher road tax for higher emmission cars are having an effect on the cars people buy - but our economy is good.
- If only you guys would get rid of all your stop signs it would save a tank or two of gas per houshold. We in the UK have very few - on most main roads you have priority and side roads have to give way to you. At junctions have a ‘give way’ rather than a stop. That way if nothing is coming you don’t have to stop.
Love the US by the way and T&R just in case you may be thinking of reminding me how wet it is over here.