August 11, 2004


$40/Bbl. & $2/Gal.: Will We Forever Be Over a (Saudi) Barrel at the Pump? (ROSS MACKENZIE, August 12, 2004, Richmond Times-Dispatch)

With crude prices at $40 a barrel and gasoline prices averaging $2 at the pump, the usual know-it-alls are mounting the ramparts.

They are (1) renewing calls for energy independence, (2) demanding release of oil from the salt-domed Strategic Petroleum Reserve (SPR) (with the co- rollary demand that the Bush administration stop putting more oil into it), and (3) reaching back to the tattered notion of raising the federal gasoline tax by 50 cents a gallon to make gas at the pump higher still. [...]

Practically everybody agrees on the need for "energy independence" - on stuffing corks in the muzzles of the guns held to our heads by our good friends in Saudi Arabia, Venezuela, Mexico, and Russia. What's lacking is the political will to tap into our own abundant petroleum while we convert to a hydrogen economy. [...]

What would help?

-Provide tax credits to companies researching and developing technologies for alternative fuels, particularly hydrogen.

-Provide similar credits for companies developing more cost-efficient technologies for extracting oil from coal - the U.S being, of course, the Saudi Arabia of coal.

-Lift what effectively has been a quarter-century moratorium on the construction of new nuclear plants for electric power generation; provide tax credits for companies building them, too. And finally,

-To ease us toward the hydrogen economy that surely is our future, develop the nation's own abundant untapped reserves of oil and natural gas.

All fine and dandy, but none of it an argument against boosting taxes dramatically. Why is it that it's an article of faith among conservatives that taxing something leads to less of it except when it comes to gasoline consumption?

Posted by Orrin Judd at August 11, 2004 11:33 PM

Please. Boosting taxes at the pump doesn't just hit retail drivers in the pocketbook. It raises the cost of transportation through all phases of economic activity. Adding the proposed tax increase to the recent price spike, you're proposing to divert approximately $200 billion a year out of the pockets of consumers and businesses and into the hands of the government and big oil.

Yeah, that'll help the economy. Riiiiight.

Posted by: HT at August 12, 2004 12:20 AM

The tax should be much more than 50 cents, then cut taxes elsewhere.

Posted by: oj at August 12, 2004 12:27 AM

OK. Sure. Although when that happens we'll probably be so distracted by all the flying pigs that no one will be able to get any work done anyway.

Posted by: HT at August 12, 2004 12:32 AM

Folks like the idea of consumption taxes instead of income taxes.

Posted by: oj at August 12, 2004 12:37 AM

What "folks" are you talking about? The people who pay gas taxes and the people who pay income taxes are not the same people, so I can probably guess, but it would be fun to hear you fill in the details a bit more.

Posted by: HT at August 12, 2004 12:48 AM

My article of faith is that taxes shouldn't distort economic decisions. I'm open to the idea that the gas tax should be higher because of externalities. But I don't believe that, when oil is a global commodity, energy "dependence" constitutes an externality.

Posted by: jsmith at August 12, 2004 12:51 AM

They don't know that. No one pays the estate tax, but 80% of us hated it.

Posted by: oj at August 12, 2004 12:56 AM


That's precisely wrong. We should utilize the undeniable power of taxes to distort economic decisions in order to achieve certain ends. Cigarette taxes for instance make unwise behavior more expensive.

Posted by: oj at August 12, 2004 12:57 AM

I'm with OJ on this. Tax what you want less of: oil consumption. I'll line up with the lefties and environmentalists *IF* we proportionately reduce taxes on what we want to encourage: savings, investment, etc. The overall economic effect should be positive, because the negative effects of increased oil cost will be more than conpensated for by the stimulating effects of the tax cuts in the other areas.

Posted by: PapayaSF at August 12, 2004 1:59 AM

Note: An irony of lower oil consumption is that a greater percentage of oil would then come from the lowest cost producers-- i.e., Saudi Arabia. That's of course why percentage of oil that's imported is not always a good measure for energy independence.

So long as it's cheapest to get oil (and energy) from Saudi Arabia, we'll do so. Imposing taxes is obviously imposing a cost on our economy. Again, in another irony, the greater the taxes cause us to reduce oil consumption, the greater they'll damage our economy relative to other taxes. So the externalities had better be big, and the taxes cut be equally inefficient.

Posted by: John Thacker at August 12, 2004 2:19 AM

Which is why we need not just to consume less oil, but to move away from oil-driven vehicles.

Posted by: Michael Herdegen at August 12, 2004 2:30 AM

Once we move from oil-based vehicles, watch Congress institute a federal hydrogen tax.

Posted by: Greg Hlatky at August 12, 2004 5:39 AM

You should all go to USS Clueless. Recently, Mr. den Beste wrote an essay regarding the plausbility of various alternate energy sources.

A gas tax would be a huge, self inflicted, wound.

Posted by: Jeff Guinn at August 12, 2004 7:24 AM


What makes less sense than taxing savings and income--two things you'd presumably like to encourage.

Posted by: oj at August 12, 2004 8:27 AM

Uh gas consumption isn't exactly price elastic is it?

I reckon a tax will just mean most people will simply be stuck with higher bills for their weekly driving rather than decide to lay off on the 200-mile pleasure rides.

Not to mention it would probably have a negative effect on labour mobility.

Posted by: M Ali Choudhury at August 12, 2004 8:38 AM


Of course it is to some considerable extent. Try driving into an American city at rush hour.

Posted by: oj at August 12, 2004 8:41 AM

As far back as I can remember, an increased gas tax has been the Ideal Solution (tm). Whatever the problem, increasing the gas tax is the best way to solve it. Any day now, we'll read about how 50 cents per gallon increase will solve the gay marriage issue.

As fas as hydrogen economy: Can anyone point out where the hydrogen wells are?

Posted by: ray at August 12, 2004 9:09 AM

Your assuming market forces/pricing would only affect one supplier?
Ali, I would suggest that @ $2.50 P.G. it would be elastic. Ford just announced its fully hybrid S.U.V. for delivery in late summer and other models will be forthcoming. Toyota and Honda are selling out their hybrid production here. Try and buy one; but get on the list early. All our other manufacturers are in various stages of hybrid development.
The writing's on the wall. High fuel prices haven't affected consumption much so far but that's because we're stuck with the current technology in our public fleet and the public's perception this is an abberation. Additionally, we're spending money to drive on vacation with $ we might have been spending on air travel domestically and overseas.

I think an increased gas tax would be a worthy addition to the list. It is a measure the Saudi's are reported to think of as their worst nightmare ... reason enough alone to have one.

Posted by: genecis at August 12, 2004 9:33 AM


I've not heard those claims--from what I understood various different interests all wish to reduce consumption and raise revenue and think taxing gas a good way to do so.

Posted by: oj at August 12, 2004 9:41 AM

The tax should be much more than 50 cents, then cut taxes elsewhere.

In all the time I've read you and corresponded, I've found you to be the most REALISTIC principled conservative I know.

Except on this one issue, where you deliberately put on blinders (I'm starting to think you do it now just to rile us all up). You can't honestly believe that we can get offsetting tax cuts for a boost in gas taxes, because you know that Washington doesn't work that way.

If it did, I wouldn't be such a pain in your side on this issue, because in theory I don't have major problems with your suggestion. But in reality, I have big problems with it.

Oh, there's a second issue too -- you're still wrong about football. :)

Posted by: kevin whtied at August 12, 2004 9:50 AM


Are saying Republicans wouldn't shift the tax burden from the rich to the poor if they had functional majorities in both houses and the presidency?

Posted by: oj at August 12, 2004 9:56 AM

Those hybrids cost approximately $2500-$3000 more to produce than their conventional counterparts--which should come as no surprise, since the vehicle effectively has two powertrains.

Some or all of the auto producers sell the hybrids at a loss. Which works when the conventional:hybrid ratio is very high. But it won't if taxation policy swaps that ratio. Which means we will be taxing ourselves into net inefficiency--we will be charging ourselves to pay more than we save.

Posted by: Jeff Guinn at August 12, 2004 11:57 AM

So what? We have more than we need.

Posted by: oj at August 12, 2004 12:02 PM

Mr. Choudhury is exactly right about inelasticity.

In my county, we've been paying $2.66/gal for over a year now, and if traffic counts are any indication, miles driven must be way up.

And we have a general COL around 30% higher than the rest of the country.

I'll be covering bets on the politician who introduces a measure to raise gasoline taxes by $5/gal.

Posted by: Harry Eagar at August 12, 2004 1:04 PM

Shifting from income to gas or oil taxes would be beneficial if kept revenue neutral. Certainly there would be a certain amount of inelasticity for a while, but once the economy factors in the permanent increase in prices, you would see a lot of shifting in various areas, not just one.

Solar, wind or other alternative sources will not make sense everywhere, but certainly the Dakotas could use more wind power and Arizona solar, even if it's simply house generators tied into the power grid. Whether the cars are hybrid, fuel cell, or simply high gas mileage, once more are demanded, economies of scale will occur. And permanent higher prices will encourage either car pooling or public transportation. There will always be a response to new challenges.

The key is to 1) that everyone knows that the days of cheap gas/oil is over so they can make plans, and 2) it is not done at a level that shocks the economy. Perhaps the initial increase is a 50 cents/galloon tax, but with scheduled increased every 3 months for several years that gives companies time to adapt.

This of course, is not without costs. It will mean higher density cities, and lesser mobility, but so what? It will alleve a host of other problems, the foremost is that we are giving Al Qaeda the money to kill us.

Posted by: Chris Durnell at August 12, 2004 5:48 PM


Is the rest of the world going cold turkey on oil, too?

Islamists don't hate us because we consume oil, and stopping won't make them like us.

Posted by: Jeff Guinn at August 12, 2004 6:24 PM

What Jeff said.

And I would add that taxing something leads to less of it only in cases where there is another viable alternative, or the item is not a necessity, preferebaly both. Neither is true of gas at this point.

Posted by: MarkD at August 12, 2004 7:06 PM


Not driving.

Posted by: oj at August 12, 2004 7:12 PM

No one who knew anything about network analysis would say that.

Posted by: Jeff Guinn at August 12, 2004 10:44 PM