7/21/2004

An Increase in the Gas Tax!?

Some members of congress want to add an additional 5.45 cents a gallon to our already soaring gas prices for the first year, and then adjust the price according to inflation each year.  This will be an additional tax imposed on gasoline…on top of the current one.  They say they want to do this to finance more highway and transportation projects, which will benefit the economy.  The Center for Data Analysis at the Heritage Foundation says that increasing the gasoline tax would “depress economic activity and the incomes of millions of Americans. 
President Bush is standing firm against any increases in taxes including this one because he knows that the best way to boost the economy is not to tax more so that you can create more jobs for the short-term, he knows that if you tax less, people have more money to spend, which will buy more goods and services from producers, which will hire more people to keep up with the demand, which will create more jobs for the long-run without governmental interference.
If this gas tax were to be imposed, “personal savings would average $8 billion less per year from 2005 to 2014. $82 billion of the $131 billion increase in federal revenues over 10 years would be financed out of foregone or lower personal savings.  Gross Domestic Product would decline by $6.5 billion per year, in real terms, from 2005 to 2014. In other words, this $131 billion in government revenues would shrink the economy by $65.5 billion.  There would be, on average, 37,000 fewer job opportunities each year. That works out to one lost job for every $351,000 in new taxes, which is equal to 11 years of work at average yearly wages.  Total federal revenues would fall short of gas tax proponent’s projections by $3.7 billion.
Family disposable income would be, on average, $2.5 billion less per year, in real terms. That’s equivalent to the cost of sending 532,600 students to college each year.”
It seems to me that we need to put in a little more research into the people we are electing into our government.  These guys obviously don’t know anything about economics and don’t seem to care about what their decisions will do.  All I can see is that all this will do is give them more of our money to line their pockets with so that they can waste it on unnecessary projects.  I think that if we keep their budgets smaller, then they will decide where the money would be best spent instead of throwing money at every idea that comes to mind.
This is what happened in Flint Michigan after GM moved their plants overseas along with the jobs.  The city dried up because there were no jobs.  The local government decided that it could do a better job and ended up spending billions of dollars on a museum, hotel, and other projects hoping to boost the economy, which backfired on them because they didn’t put any thought into the projects to see if they would actually receive enough revenue to keep the facilities open so that the jobs created would still be there today.

3 comments:

Dr. Tufte said...

Many comments.

1)Gasoline prices may be soaring (although they have been dropping since March), but in real terms they are low by historical standards.
2)Be very suspicious of any government official wanting to raise money for road and transportation projects. This is commonly known as the biggest source of pork barrel projects for members of Congress.
3)Surprisingly, there are a lot of conservatives who actually like the idea of a gasoline tax. This is because they oppose the income tax, and want to replace it with a tax on consumption (since taxing income taxes both consumption and saving). Since gasoline is such a big consumption item, they see a bigger gas tax as a backdoor way to move away from the income tax. See the Econlog post entitled "Gas Tax Debate".

Congress should be capitalized, paragraphs should be separated by a blank line (when there is no indentation), and there is no link to any of the stuff about Flint, Michigan.

derek said...

Although I don't look forward to a tax increase on gas, I do agree with the third point that Dr. Tufte presented. A tax on consumption rather than income helps people in general to save money, and distributes taxes more evenly among those that are using the services associated with the tax. Some people are conservative when it comes to driving and spending on gasoline. I think that they should be rewarded with an income tax cut for their efforts.

Another thought that crossed my mind is that higher gas prices may continue to fuel the flame under the automobile industry that is increasing research in fuel efficiency. Currently the Japanese auto makers are strides ahead of the U.S. in electric and hybrid automobile production.

Dr. Tufte said...

Spelling problems in Kavindavis' comment.

Everybody go back and read the comment by Tom DC/VA which I thought was really good. Also, check out the URL he has at the bottom (it is not linked though, so you have to cut and paste).

I'm not sure how I feel about taxes on gasoline. It's already taxed a bunch, but on the other hand it has inelastic demand (so the tax will fall on consumers) and it is purchased more or less universally. So, it makes a good target.