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Gas Tax Repeal

What's the craziest thing Obama could suggest in the present Tea Party-dominated moment of economic hardship?

How about a tax hike at the pump to make gas even more expensive?

That's the suggestion offered to Obama by the New York Times, which is desperate to preserve (and actually increase) the federal gas tax set to expire next month. One has to hand it to the Grey Lady - she's standing up for principle against the obvious will of the people. This is likely the impetus for the editorial - the Times hopes to prepare the battlefield by firing the first salvo, before Republicans raise their voices in opposition to extending the tax.

And that is exactly what Republicans should do. Republicans should ensure that the "gas tax repeal" is the next headline-capturing battle in Washington. Republicans would be on record seeking to lower gas prices (in light of Obama's refusal to do anything on that front - since gas is a form of energy, and skyrocketing costs are just part of the plan). And they would have an opportunity not only to oppose tax increases, but to actually cut existing taxes. Since the taxes expire in the absence of congressional action, the tax cut is immune to a presidential veto and is possible to acheive with only one house of Congress.

If Obama comes out against the GOP, he is on record in favor of higher gas prices. More prudent would be a capitulation by Obama, allowing the tax to expire. This would be viewed as a Tea Party victory, but Obama would share in the victory and have a bi-partisan talking-point. Further, lower gas prices can only help his re-election chances.

Either way, the GOP have a win-win situation. The public will support their position, so Obama either alienates the public and further proves himself addicted to taxes, or the GOP score a victory for the middle-class by lowering taxes.

The only way the GOP lose is if they do nothing. If Democrats preserve the gas tax without a peep of protest from the Republicans, they quietly maintain the tax and gas-price status quo with no repercussions - and the Republicans lose yet another opportunity to stand on their convictions.

Categories > Economy

Discussions - 4 Comments

No, Obama is much more clever than many of his critics give him credit for. He will keep the gas tax and then insist that GOP stubbornness on the "Bush tax cuts" is keeping them high....

Ken, so he's "clever" because he blames Republicans. Well by that standard any and all Democrats are equally "clever," for they'll blame Republicans at the drop of a hat. That Republicans are apt to not exploit moments of political gain is nothing new. But their consistent failure to do so does not render their political opponents sharper, clever, or "more clever."

And as for Obama, he isn't "clever." He was carried against Hillary, and he's being carried now. What the creature really is is painfully provincial.

And now increasing numbers of Americans are deeming him for what I almost immediately sized him up as, id est, a humourless bore.

One can finance road construction and maintenance in the following ways:

1. Tolls

2. Excises on gasoline

3. Auto registration fees

4. Taxes from miscellaneous sources.

Pareto efficiency is enhanced by the closest alignment of costs and benefits, or, put another way, by circumscribing the socialization of costs. Option one does that most thoroughly, but options two and three do that better than option four.

Here in New York, the annual expenditures of state, county, and municipal governments on road maintenance are somewhere in the neighborhood of $610 per capita, or 1.4% of personal income. (It is difficult to say precisely because the maintenance of other sorts of public works are corralled in municipal street budgets). One of the state's five inter-metropolitan interstates is a toll road. State and federal gasoline taxes are good for roughly 18% of the maintenance costs on all other roads. It is doubtful that vehicular transportation is an inferior good like margarine, so an excise on gasoline would not be notably regressive. Raising excises on gasoline to about $2.60 a gallon and then the biennial auto registration fee to $320 would suffice to cover the maintenance and construction budgets. The cost of road maintenance would actually be borne by motorists and not by taxpayers in general.

People tend not to like transparent costs. Funny.

See the New York Times was just reflecting the popular will of New York citizens such as AD.

I would point out that the federal excise tax on gasoline is just 18.4 cents.

I have no clue how you get the $2.60 per gallon figure AD, that is excessive and the type of policy I routinely would be against. Horrible policy I think.

But I am all in favor of federalism and I think New York should go ahead and raise an excise tax of $2.60 a gallon.

I am in favor of doing this because gasoline is an inelastic good, small changes in demand have a serious impact upon price. You put that kind of damper on the substantial New York demand and you lower gas prices nationwide by at least 20 cents, Hey I live in Ohio. In particular Toledo, so I already benefit from a strange decision on the part of Michigan to tax refiners. Technically Ohio refiners also pay the tax when they bring the gasoline into Michigan, but Michigan's tax structure ensures that it makes no sense for refiners to build excess capacity in Michigan, since any gasoline exported would also pay the Michigan tax (as a result they only have the marathon in Detroit). Also as a result the city of Toledo has almost twice the refinery capacity as the entire state of Michigan, this results in bellow state average prices in Toledo, a difference of around 5-20 cents. It also means that Michigan pays more for gas in transportation than the market+tax rate would otherwise suggest. So I agree with you that how you structure taxes matters. Both Ohio and Indiana refine a substantially greater amount of gasoline than they consume.

Another thing that would happen is that New Jersey gas stations would be euphoric. New Jersey already poaches on New York gasoline revenues by keeping its state gasoline tax under 12 cents. Your policy would create more than a $2 difference between New York and New Jersey. If I owned a station in Northern New York City I would sue.

Vehicular transportation as a good is more regressive than you think, albeit "regressive" is not exactly the most apt label. In urban areas were appartments are very expensive, poorer folks often times commute. You would put such a strain on commuting from the Northern parts of New York City, that these areas would see a market meltdown. New Jersey and Southern New York city (those who can buy gas in New Jersey) would benefit. You would kill the resale value of commuter neighboorhoods, and also hit these folks with an incredible gasoline shock. Not only would it be somewhat regressive, its effects would be targeted and deliver a double whammy of pain and default. I would call it a monocentric tax.

I am almost sure that a shock that size would have a profound impact upon the Urban Geography/spacial economics of New York City. (gasoline stations, car dealerships, and several zip codes worth of real estate would take serious baths.)

It might help solve urban sprawl (except in New Jersey) and if you have a gasoline tax that is $2.60 demand for public transportation skyrockets, while nationally the macro direction for Ford and GM is up when gasoline prices fall.

Bad for F and GM, good for GE and Siemens(and german exports generally) and FLUOR and those who would probably get the high speed rail contracts, maybe good for Cummins if they build more diesel engines for public transportation fleets. Perhaps good for skype, CISCO and the internet forces which have been working to smooth the monocentricity of New York buisiness. But can the folks who commuted find "work from home" on the cloud?

I agree with you that Pareto efficiency is enhanced by the closest alignment of costs and benefits. But I would argue that entire industries build themselves around cost and benefit structures and bend other goods to Pareto efficiency from this structural basis. (i.e. folks agree to a salary, or to take a job, or to buy a home with a commute with some sort of rational expectation about price stability.) A radical shift in gasoline prices would result in a ton of waste, not to mention incredible demand on New Jersey pumps, long lines and all sorts of traffic congestion.

In other words sure gasoline taxes may not be Pareto efficient, but real estate has reached a Pareto equilibrium around this gasoline tax structure.

Also note the huge difference it would make if the $2.60 tax was federal and replaced the rather tame $.184. In the scenario with 2.60 New York, New York suffers a housing meltdown, and New Jersey sees a boom. The same federal tax would work in reverse.

New Jersey in order to attract New York sprawl has maintained a 30 cents difference with New York, while the 30 cent difference might still be in maintained, the lower relative difference and the much higher Gasoline tax works in reverse to cause a New Jersey real estate bust and a New York Boom(or at least monocentricity, given that this tax would kill consumer spending, any talk of boom should be muted.)

The gas tax repeal would be a popular move, but you could justify raising it in a non dislocative manner (say 4 cents) or keeping it the same.

I am for repealing it, but only because I also include 5) deficit spending as a form of possible finance, and argue that the federal government is distinguished from state government in that the only reason to tax is not to fund goverment but to control inflation, aid unemployment or persue a modicum of price stability.(to avoid the very consequences that would be engendered by raising the gasoline tax to $2.60 from 18.4 cents.)

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