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Friday, September 30, 2005

A permanent 3$ tax on gas.

An article in the Wall Street Journal from September 12th.

"With gasoline prices topping $3 a gallon and consumers searching for relief, what's the smartest thing the government could do? Make sure the prices stay at least that high, say some economists."

"High prices could boost conservation and diminish the country's oil thirst. The last time that happened was from 1978 to 1981, when average gasoline prices rose about 90 cents to $2.86 a gallon in today's dollars, and gasoline consumption fell 11%, while imports slumped 28%."

"Walter McManus, a University of Michigan automotive economist, estimates that if prices jumped to $2.86 a gallon and stayed at that level, sport-utility vehicle sales would fall 18% in five years. If gasoline rose to $3.37 a gallon, SUV sales would fall 28%. Sales of pickups and vans would plunge.""Congressional Budget Office Director Douglas Holtz-Eakin calculates that a $1 increase in gasoline taxes would cut consumption 20% within 14 years."

"Economy.com economist Mark Zandi says a gasoline-tax increase now would be well-timed. The economy still is expanding, and consumers already have confronted the shock of $3-a-gallon gasoline. The consequences will be clear in the next six to 12 months, the time needed to pass a gasoline tax. Fifty-six economists polled by The Wall Street Journal online edition said, on average, it would take sustained gasoline prices of $4.06 a gallon to threaten the economic expansion."

"A $1 increase in gasoline taxes would raise about $100 billion"

This idea presents more problems than it solves. As we all know in the short run a lot of people would be hit very hard by a tax this large. The article mentions that 56 economists from the Wall Street Journal online edition speculate on average that it would take sustained gas prices of $4.06 a gallon to threaten economic expansion. I think 3$ a gallon would do the trick quite nicely. With gasoline involved in some way in every transaction in the market from Wal-Mart to McDonalds, a possible dollar tax would put a huge strain on the economy. With everything delivered to Wal-Mart, McDonalds or most any other store or restaurant by truck, prices would have to go up, right? With everything in the economy priced higher but with profits for business's staying the same, salaries wouldn't go any higher. Prices would have to be raised even higher to give employees the satisfaction of a raise, and this could cause unwanted inflation. A $1 dollar tax on gas could potentially have a big effect on an economy like the Springs. Being that Colorado Springs relies quite heavily on tourism this could have a huge effect on our economy. Not only will car travel be down but people will be flying less because airlines are going to be charging more for tickets.

On the other hand there would be some good that would come out of this. With a tax, demand would drop over the long run and our country would be less reliant on foreign oil producers. Also as mentioned in the article, car companies would be pushed to create more fuel efficient cars and hybrids. Also development on alternative fuel vehicles would increase dramatically. Pollution would be reduced as a side effect. The extra 100$ billion the government would make could be put to good use, but I'm guessing that's not a strong possibility.

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