Tax, Baby, Tax!
Tax! This simple three letter word is the most dreaded word in American society. It strikes fear amongst the most stalwart politicians and in turn politicians incite fear with it. Not even hotly debated issues such as abortion, second amendment rights, or controlled baby killings have an impact to the tune of the word tax. I even find myself cringing when typing the word. Why is this? Are taxes really that bad? Simply answered; it depends. However, in lieu of the recent catastrophe in the Gulf Coast, I am ever more certain that America’s dependence on foreign AND domestic oil needs to be curbed. The following is an argument for one solution in reducing consumption of oil; to raise the federal excise tax on gasoline by 8.5 cents. This increase can be found by adjusting for inflation the taxes real value since it’s last increase in 1993.
I am not advocating that a tax on gasoline is a cure all solution, however, an analysis of its affect on consumption and its potential tax revenue make a tax increase rather enticing. In the short run, the tax increase will accumulate an annual revenue of 1.15 billion dollars. The tax will increase the price of gasoline at the pump as producers will shift the tax’s statutory incidence onto consumers, however, the increase will likely be less than the full tax increase. Along with the increased tax revenue many co-benefits will be recognized. Consumers begin using alternative transportation, drive less, or drive more fuel efficient vehicles. In the long run the tax will have similar economic effects but to different degrees as demand for gasoline is more elastic. The tax’s incidence will shift back to the producers as individuals adjust their consumption behaviors as previously noted.
Environmentally, carbon dioxide emissions will be reduced to the tune of 6 million lbs per gallon per day. Additional benefits will be less traffic congestion, better road conditions, and fewer automobile accidents. The distributional issues of the increased tax on gasoline will be recognized in the primary and secondary benefits of decreased consumption. Further, the additional tax revenue can be spent in renewable energy sources or invested into the Highway Trust Fund to rebuild America’s crumbling infrastructure.
As the negative externalities of oil consumption are continually recognized by way of carbon emissions, or environmental catastrophes or middle east violence, the need for action is unequivocally today. A tax on gasoline is just a one-pronged approach to a multifaceted problem, however, its importance as a legitimate policy solution needs to be openly and honestly debated. The political in-feasibility may be at an all time low as the crisis in the Gulf Coast brings serious attention and potential action to America’s number one problem; oil dependence. I think I can hear Sarah Palin now… Tax Baby Tax!