Yglesias: America is unusually vulnerable to oil price shocks because of our amazingly low gas tax


A repost from CAPAF’s uber-blogger Matt Yglesias

Very reputable public opinion analysts tell me the voting public is absolutely obsessed with the high price of gasoline and thus that any suggestion of the (accurate) information that gasoline is far too cheap in the United States will lead you to be torn limb from limb. Nevertheless, as the BBC’s handy chart here shows, gas is extremely cheap in this country thanks to our inadequate taxation of it:

If we had higher gasoline taxes in this country offset by, say, lower retail sales taxes then on average people would have the same amount of money in their pockets. But we’d have somewhat less driving, and the driving would be done in somewhat lighter, more fuel efficient vehicles. The result is that the overall economy would be much less vulnerable to sudden shocks in the price of oil.

If you think about, say, the Netherlands they clearly have no ability to significantly influence geopolitical events in the Middle East or the extent of Chinese economic growth. Thus, it’s very smart of them to have tax policy that’s designed to leave them less vulnerable to these kind of events outside of their control. But if you look at the USA, it turns out that for all our military might we can’t control these things either. But thanks to our bad public policy, we’re extremely vulnerable to these shocks and thus have to observe the spectacle of politicians blaming each other for high gas prices even though they have very little ability to impact this on the short-term and cheap gasoline is undesirable in the long-term.

“” Matt Yglesias

7 Responses to Yglesias: America is unusually vulnerable to oil price shocks because of our amazingly low gas tax

  1. Alan says:

    Matt, I totally agree with this argument but see a path on the horizon that will help reduce the negative impacts of oil price volatility – namely CAFE regulations. As car manufacturers are being forced to meet 35.5MPG fleet standards by 2016 and even tougher regulations under consideration for 2017 and beyond our vehicle choices will inevitably become lighter, smaller, and more sustainable. While I would not oppose higher taxes on oil, I think we are now on a more sustainable path and one that could absorb increased tax rates once the more efficient vehicle infrastructure is in place (5-10 yrs or so).

  2. CBO has estimated that a gas tax of as much as $2.00 per gallon would not decrease gasoline consumption below what the 35 MPG CAFE standard will achieve anyway.

    If a typical auto gets 30 MPG and is driven 12,000 miles per year, that’s 400 gallons per year. A $2 gas tax would add $800 per year to that owner’s operating costs–which is a lot of money for a person earning the prevailing average $19.37/hr for production/non-supervisory workers–but, according to OMB, achieve zero environmental and national security benefit. Why would you want to do that, Matt?

    Furthermore, as the fleet fuel efficiency increases due to CAFE, the cost of fuel matters less and less to drivers. For example, with retail gasoline at $4.00 per gallon, a vehicle driven 12,000 miles per year at 15 MPG uses 800 gal/yr ($3,200), and the owner can save $1,600 per year by trading in that gas hog for a vehicle that gets 30 MPG and consumes only 400 gal/yr. However, if that second car is traded for one that averages 60 MPG, the fuel savings from the second trade is only $800 per year. In other words, we are moving out of the regime where price was effective–and could have been more effective–and moving into a regime where only a scheme like CAFE can keep driving down highway fuel consumption. Promoting a gas tax now is fighting the last war.

  3. Mulga Mumblebrain says:

    I’m glad the author talks of US ‘military might’ having something to do with US petrol prices. By what law of morality does the US arrogate to itself the right to interfere, intervene, subvert and invade countries to ensure the ‘right’ of US motorists to drive gas-guzzling machines? If I was asked to nominate one factor that has so far, (and probably will continue to do so), thwarted global action on climate destabilisation and ecological collapse, it is the US desire to dictate to the rest of humanity. The conviction, held as revealed quasi-religious truth, that the US is the supreme nation, ordained by God to prescribe to others how they should organise their societies, with whom they should have amicable relations and how they should exploit their natural resources, makes global co-operation impossible. Until the US abjures the right to issue diktats to all other countries, there will be ceaseless war and conflict, as the biospheres collapse around us.

  4. Tom says:

    US energy policy (gasoline usage) has always been thwarted by special interest and government ineptitude. The turning point for US energy policy should have been when OPEC had their little embargo in the 70’s. Many of us remember that incident and the long term results. That by the 80’s we saw gasoline fall to $1.00 per/gallon. With consumption and energy usage increase as the cost of fuel drooped.

    What did our politician implement through these abundant energy years. They gave tax breaks for vetches over 5,000 lbs as much as $5,000. Another fine example was that president Clinton thought that the country could afford another .10 cent tax on oil. Congress agreed and implemented a .04 cents tax increase, are they serious. This is what we elect to office every other year or so.

    Today the problem remains as it did when Clinton wanted .10 cents tax. It doesn’t matter how much we increase the tax on energy. The problem is that politician will waste any extra funds collected. To a degree that all the extra billions taxed will be used to line fat cats pockets and special interest industries (big oil/energy companies).

    This leads to the main point of our energy policies, that is cap & trade. How much easier it would be to implement an X-extra per gallon tax on crude. As they propose, a tax on carbon credits. X is easily tracked, or if we use x so we should receive $$$. While carbon credits are ????, No one has defined them. They will be sold ???, nobody has figured that out yet. All that is known about carbon credits is that the big rich energy producers/polluters are lining up to receive tons of $$$$$$$$$. This is because conveniently, they will receive the bulk of the carbon credits for FREE-EEEEEE. Meanwhile the average Joe will be paying so much extra for energy. Without receiving any real energy cost reducing benefit to us. That is subsidies to improve MPG’s, Solar/wind implementations, and many other start up possibilities.

    Again it all comes down to realizing that our politicians are unreliable in making these decisions. So what’s the answers, we can start by removing all elected officials, ALL

    How about a rally cry
    Vote Environment or Up Your Tail Pipe (working on the slogan)

  5. Don Gisselbeck says:

    Why aren’t we paying for our current wars and most of our War Department directly through gas taxes?

  6. Mark G. says:

    High gas taxes favor those who drive a shorter distance to work. Seems to take aim at those who live in rural areas. Is this a good thing?

  7. Joan Savage says:

    Might the folks at CAP be able to find out more about the Obama administration’s exploration of the vehicle-miles fee?

    The Netherlands plan on vehicle-miles due to start in 2012 has a proposed fee of 3 euro cents per kilometer, or 7 U.S. cents per mile.

    In comparison to the $2.00 fuel tax/gal for a 30 mpg car in the US, such a vehicle-mile fee in the US would work out to 6.6 cents per mile, so the vehicle-mile fee or the gas tax are similar, but only for all-petroleum cars at 30 mpg!