Americans what would you think of this?

I dislike taxes vehemently in general. Unfortunately it is a fact in life that death and taxes are inevitable, but it doesn't make either a good thing or to be any more desired. Too many in Europe are happy to raise taxes overall. I want the overall burden of taxation to be as low as possible, but where those taxes falls can make a difference.

The oil price is notoriously volatile - and always will be from now on. The inevitability as the developing world continues to demand more, while new finds seem to be predominantly in unstable regions, is that the price is just going to go further and further up in a volatile fashion - with occasionally violent downwards as well as upward swings. When I fill up at the pump most of what I pay is tax, so the proportional swings in real petrol prices is quite low, whereas in the US despite it being cheaper American family budgets must suffer more from the inevitable and uncontrollable swings in raw crude prices due to not being able to plan for sudden surges in gas price.

In an ideal world if I was responsible for Federal policy I'd look to phase in higher gas taxes, using 100% of the extra funds to pay for corresponding tax cuts elsewhere. EG perhaps a 1 (or more) cent in the dollar federal income tax cut, funded by phased increases in the federal gas tax. I would rather be taxed at the pump, than taxed from my pay check. That will provide relative immunity against further swings in gas prices.

What do conservative (or left-wing) Americans here think?

Well, other than the naive assumption that "extra" taxes will ever be used to reduce taxes elsewhere, there's the issue of where our gas taxes allegedly go now (maintaining the roads/building new roads), and if they increase gas taxes, I'd rather see them actually maintain the fucking roads than knock a few cents off my income tax.

There's also the regional issues to consider. GB in general I believe uses vehicles far less, and gas consumption is lower as a result. The US, just due to size, has different patterns of use that may not react well to increased gas taxes.

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Originally Posted by coinich

There's also the regional issues to consider. GB in general I believe uses vehicles far less, and gas consumption is lower as a result. The US, just due to size, has different patterns of use that may not react well to increased gas taxes.

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On a personal level we've covered this before, I believe I drive more miles myself than any American said that they did.

Either way though, a like-for-like change (naive though it may be) would be no extra tax. Though arguably it is a "regressive" move, but I'm OK with that. This is a very IMO conservative policy, taxing consumption rather than income.

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Originally Posted by RandBlade

On a personal level we've covered this before, I believe I drive more miles myself than any American said that they did.

Either way though, a like-for-like change (naive though it may be) would be no extra tax. Though arguably it is a "regressive" move, but I'm OK with that. This is a very IMO conservative policy, taxing consumption rather than income.

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I understood driving an hour to the doctor, or 3 hours to and from work total each day was more of an American thing, being that GB locations are usually closer, and that city streets aren't always well optimized for cars; leading to more consumption culturally. But hey, I'm assuming quite a bit here.

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Originally Posted by RandBlade

I dislike taxes vehemently in general. Unfortunately it is a fact in life that death and taxes are inevitable, but it doesn't make either a good thing or to be any more desired. Too many in Europe are happy to raise taxes overall. I want the overall burden of taxation to be as low as possible, but where those taxes falls can make a difference.

The oil price is notoriously volatile - and always will be from now on. The inevitability as the developing world continues to demand more, while new finds seem to be predominantly in unstable regions, is that the price is just going to go further and further up in a volatile fashion - with occasionally violent downwards as well as upward swings. When I fill up at the pump most of what I pay is tax, so the proportional swings in real petrol prices is quite low, whereas in the US despite it being cheaper American family budgets must suffer more from the inevitable and uncontrollable swings in raw crude prices due to not being able to plan for sudden surges in gas price.

In an ideal world if I was responsible for Federal policy I'd look to phase in higher gas taxes, using 100% of the extra funds to pay for corresponding tax cuts elsewhere. EG perhaps a 1 (or more) cent in the dollar federal income tax cut, funded by phased increases in the federal gas tax. I would rather be taxed at the pump, than taxed from my pay check. That will provide relative immunity against further swings in gas prices.

What do conservative (or left-wing) Americans here think?

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Well. Since I brought this up in another thread, you can guess that I'm in principle a fan of higher gas taxes. But, as you can imagine, there are a hell of a lot of provisos.

First of all, any such tax would need to be gradually phased in according to a known formula. The shock the the economy of dramatically higher gas taxes overnight would be quite severe, even if the net tax liability for the country as a whole was effectively zero.

Secondly, I would prefer that such a change in our tax system would be more intelligently targeted. Using gas (petrol, fuel, whatever you want to call it) is not in itself a negative thing IMO - people need to get around, after all. The biggest problem is the environmental implications from the release of carbon and other nasties, with secondary issues associated with hampering foreign policy and depleting a useful resource when there are decent alternatives. IMO more effective than a narrow gas tax would be a blanket carbon tax. This would hit owners of electric/hybrid cars who charge off of a polluting source on the grid, and would have much broader applicability. Let me be completely honest: despite my general agreement that global climate change is an issue, I was very opposed to carbon taxes in the past (mostly on complexity grounds and the other silliness associated with it like 'carbon offsets'), but I have been provisionally convinced they're a necessary and good idea which will do a whole lot of good things, all at once.

Third, I'm uncomfortable with such a nakedly regressive tax, given the fairly large proportion of a poor American's income that (directly or indirectly) goes to pay for fuel/energy. There are lots of simple solutions to this that are floated around in countries with a high VAT, and I imagine some sort of phased in rebate system would be necessary for lower incomes. It would add an additional complication, but frankly I can't see a way around that. IIRC, though, there are ways to structure such a system so you still get most of the desired reduced consumption - I think that's why a rebate system is better than more immediate discounts.

Fourth, I agree in principle that such a large chunk of additional revenue should be balanced by a tax cut elsewhere. I would caution against doing it too quickly, though. Such a Pigovian tax as the one we are discussing will likely cause a dramatic reduction in consumption over time (it takes time to take effect because of phase-in and the time scale of retiring cars and power plants). As it is, US gas consumption is roughly flat, and I imagine this would cause it to drop quite a bit in the time frame of a decade or two. As it does, gas/carbon tax receipts will drop precipitously from previous highs. This is in effect a good thing and a success for a Pigovian tax, but it makes designing an appropriate offset very challenging from the start. (BTW I do recognize that income tax receipts are likely to rise modestly if you cut the rate, but I doubt the effect would be as strong as a direct Pigovian tax... all that phenomenon does is add yet more complication to matters.) I would caution against creating a large income tax offset and then expecting future politicians to raise the income/whatever taxes as revenues drop off from the gas/carbon tax. The policy upshot from this is that creating an effective offset is likely to be a complex and tricky undertaking in the short term.

On a somewhat side issue, I do agree that more of our budget needs to be allocated to maintenance and upgrades of our aging infrastructure. I'm not confident that should be done through increased overall taxes, though, but reallocation within our spending. I do in principle think that a modest consumption tax on our most expensive infrastructure (tolls on interstates, per passenger/cargo ton taxes at airports and on railroads, congestion taxes in city centers) is a way to get a far more stable revenue stream with direct connections to the actual costs. This has its own issues, but it's a discussion for another thread.


BTW, RB, do I count as a conservative or left-wing American? Just curious. ;)

The other problem is that MPG is a very poor representation of a vehicle's wear and tear on the roadways, so our current gas taxes are inherently unfair, and this is only getting worse as people seek out more fuel efficient vehicles, because, of course, the less well-to-do can't afford new hybrid vehicles or a commuter bike. So, as you increase gas taxes, you increase the regressive nature of taxes on fuel.

Not that I care much, as I'm able to dodge these taxes fairly nicely, but my friend making 8.50 an hour, driving around in a mid 80's American gas-guzzler would sure feel differently.

I like the idea but am wary of the ramifications. Raising the price of oil raises everything's price. If it's not a direct money back based upon oil consumption receipts then even if they are making money back in tax reductions elsewhere that will not translate to discounts on goods sold in stores. You'll literally inflate the price of everything.

I like the idea that it prevents oil shocks from occuring. It feels like the most it'll do is help people plan better, and help encourage the switch to more fuel efficient vehicles.

I don't think it's a good idea, but I'm specifically opposed to what Rand is suggesting in using higher gas taxes to pay for other tax cuts. For the following reasons:

1) As Rand points out, energy prices can be very volatile. I don't think it's smart to base budgeting around a volatile income stream.

In the US, we've seen states try to make-up budget holes by targeting revenue streams that are very volatile. IE the states of California, Maryland and New York get a very high share of tax revenue from high earners, who also happen to have very volatile incomes. When the economy slows down, top-earners tend to lose a lot of income in both relative and absolute terms. They still make out okay, but the scale of the income swings is massive and blows holes in state budgets that rely on them.

2) As wiggin points out, it's a consumption tax, which means it's somewhat regressive. Then again, it's usually wealthy people who are consuming more energy per capita with mansions, boats, Bentleys and whatnot so maybe it's sort of a wash.

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Originally Posted by Dreadnaught

I don't think it's a good idea, but I'm specifically opposed to what Rand is suggesting in using higher gas taxes to pay for other tax cuts. For the following reasons:

1) As Rand points out, energy prices can be very volatile. I don't think it's smart to base budgeting around a volatile income stream.

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Actually, it depends how you structure the tax. It's easy to set it as a fixed amount of money per barrel of oil (or gallon of gas, or ton of carbon). That's how the current federal gas tax is set up. That way the income will fluctuate with consumption (an issue, no question) but not with oil prices directly. The downside is that the tax can quickly become irrelevant from inflation, but it's easy to index that to inflation.

For that matter, income taxes themselves are prone to quite a it of volatility. Not as much as moves in oil prices, but probably similar to changes in consumption (there's not a huge amount of elasticity there).

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2) As wiggin points out, it's a consumption tax, which means it's somewhat regressive. Then again, it's usually wealthy people who are consuming more energy per capita with mansions, boats, Bentleys and whatnot so maybe it's sort of a wash.

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Definitely not a wash. Energy expenditures are a far small proportion of incomes/spending for the wealthy than the poor. A flat tax on energy consumption would be very regressive.

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Originally Posted by Dreadnaught

I don't think it's a good idea, but I'm specifically opposed to what Rand is suggesting in using higher gas taxes to pay for other tax cuts. For the following reasons:

1) As Rand points out, energy prices can be very volatile. I don't think it's smart to base budgeting around a volatile income stream.

In the US, we've seen states try to make-up budget holes by targeting revenue streams that are very volatile. IE the states of California, Maryland and New York get a very high share of tax revenue from high earners, who also happen to have very volatile incomes. When the economy slows down, top-earners tend to lose a lot of income in both relative and absolute terms. They still make out okay, but the scale of the income swings is massive and blows holes in state budgets that rely on them.

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Depends how you define the tax. We have taxes upon taxes here, the main tax that gets charged on fuel is fuel duty. That is a fixed price and not a percentage of the raw price. Currently fuel duty is 57.95 pence per litre which is $3.44 per US gallon. Cheekily, VAT is charged on top of duty so that adds another twenty percent. So even if oil was "free", transporting it to petrol stations was "free" and the stations were giving it for "free" we would still be paying 69.54p per litre ($4.12 per US gallon) in pure tax.

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2) As wiggin points out, it's a consumption tax, which means it's somewhat regressive. Then again, it's usually wealthy people who are consuming more energy per capita with mansions, boats, Bentleys and whatnot so maybe it's sort of a wash.

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No its regressive. As both wiggin and Cain have pointed out it would be very regressive as a proportion of income plus it is the wealthiest who can afford a Prius etc not the poorest.

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Originally Posted by wiggin

Actually, it depends how you structure the tax. It's easy to set it as a fixed amount of money per barrel of oil (or gallon of gas, or ton of carbon). That's how the current federal gas tax is set up. That way the income will fluctuate with consumption (an issue, no question) but not with oil prices directly. The downside is that the tax can quickly become irrelevant from inflation, but it's easy to index that to inflation.

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Originally Posted by RandBlade

Depends how you define the tax. We have taxes upon taxes here, the main tax that gets charged on fuel is fuel duty. That is a fixed price and not a percentage of the raw price. Currently fuel duty is 57.95 pence per litre which is $3.44 per US gallon. Cheekily, VAT is charged on top of duty so that adds another twenty percent. So even if oil was "free", transporting it to petrol stations was "free" and the stations were giving it for "free" we would still be paying 69.54p per litre ($4.12 per US gallon) in pure tax.

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Err, don't you both see how that's also a recipe for lots of income volatility? Prices impact oil consumption, which in turn still risks pretty wide revenue swings.

Okay, Dread, but the same could be said about any tax. Tax receipts are very sensitive to the business cycle, employment, trade, etc. And all of those are tied into oil prices, too. That being said, total US demand for oil is relatively inelastic in the short term (stripping out seasonal variability) - nowhere near as inelastic as the market in, say, heroin, but far less elastic than the market in fresh fruits. Substitution is not very easy on the consumer market, and there's only so much you can reduce consumption given the realities transportation needs.

I do recognize, though, that it would be a relatively volatile income stream, especially in the medium term as more substitution starts to take effect. That's why I'm leery of offsets. A somewhat (?) better system would be to leave the tax in place, budget to take the bare minimum tax expected for mitigating externalities of carbon production, and use the rest (which would fluctuate with time) as a varying income tax rebate. That still constrains consumption, but partially offsets the tax (which can be done in progressive manner), and doesn't rely on a volatile income stream to fund essential government functions. There's probably tweaks needed on the basic idea to make it work, but the point is that there are ways to get around issues of volatility without sacrificing the fundamental good sense of a Pigovian tax.

I wonder how this would affect the cost of other petroleum products :o

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Originally Posted by wiggin

Okay, Dread, but the same could be said about any tax. Tax receipts are very sensitive to the business cycle, employment, trade, etc. And all of those are tied into oil prices, too. That being said, total US demand for oil is relatively inelastic in the short term (stripping out seasonal variability) - nowhere near as inelastic as the market in, say, heroin, but far less elastic than the market in fresh fruits. Substitution is not very easy on the consumer market, and there's only so much you can reduce consumption given the realities transportation needs.

I do recognize, though, that it would be a relatively volatile income stream, especially in the medium term as more substitution starts to take effect. That's why I'm leery of offsets. A somewhat (?) better system would be to leave the tax in place, budget to take the bare minimum tax expected for mitigating externalities of carbon production, and use the rest (which would fluctuate with time) as a varying income tax rebate. That still constrains consumption, but partially offsets the tax (which can be done in progressive manner), and doesn't rely on a volatile income stream to fund essential government functions. There's probably tweaks needed on the basic idea to make it work, but the point is that there are ways to get around issues of volatility without sacrificing the fundamental good sense of a Pigovian tax.

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1) Well-balanced income taxes aren't super-volatile because incomes tend to be somewhat sticky. Doesn't mean recessions don't hurt governments, but the main shortfalls tend to come from the things that change most in a recession: consumption and transactions (EG sales tax revenue, capital gains revenue, etc).

2) What you propose sounds nice, except that most governments have proved themselves to be utterly unable to budget around the volatility. They seem to inevitably use these income streams to fund essential functions. Or they become unable to prioritize what's essential, so when the income is reduced they simply borrow/raise taxes. Often while continuing to expand the size and number of "essential" programs. You know as well as I do that the Federal gas tax trust fund is used for all sorts badly-prioritized shenanigans.

What I'm saying is that the idea of a gas tax sounds nice in theory, but it's meaningless without extremely disciplined government.

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Originally Posted by Dreadnaught

1) Well-balanced income taxes aren't super-volatile because incomes tend to be somewhat sticky. Doesn't mean recessions don't hurt governments, but the main shortfalls tend to come from the things that change most in a recession: consumption and transactions (EG sales tax revenue, capital gains revenue, etc).

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First off, incomes are only stick for middle incomes - at higher incomes they are highly dependent on bonuses and/or market performance... and that makes up a surprisingly large amount of US (and state) income taxes. Secondly, in a recession while average incomes for the employed might not drop much due to wage stickiness, the labor force and employed rate can both drop by quite a bit. Not as volatile as oil consumption, no question, but hardly stable.

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2) What you propose sounds nice, except that most governments have proved themselves to be utterly unable to budget around the volatility. They seem to inevitably use these income streams to fund essential functions. Or they become unable to prioritize what's essential, so when the income is reduced they simply borrow/raise taxes. Often while continuing to expand the size and number of "essential" programs. You know as well as I do that the Federal gas tax trust fund is used for all sorts badly-prioritized shenanigans.

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That's why you make it enshrined in law rather than having it fund general revenue. I personally think this amounts to Congress abdicating their responsibilities, but since they clearly seem unable to actually carry out those responsibilities effectively, it's the least bad option. The HTF worked pretty well for a long time until earmarks got ahold of it. Tightening the law on how funds can be raided for earmarks will help deal with that issue.

I recognize the details would need to be worked out, but the fact of the matter is that government is complicated, as is tax revenue. We can't pretend that an intelligently designed tax system is going to give us nice smooth revenue, but there are ways to mitigate some of the biggest swings without just giving up altogether. For that matter, it's not like our income tax system isn't an absolute disaster as it is. I can't imagine an increased fuel (or, preferably, carbon) tax would be worse.

On the face of it, if you had to choose between a Pigovian tax on something bad (fixed to make sure it isn't regressive) and a tax on something good like income or employment or profits, wouldn't you prefer to go with the former?

In the medium to longer term, as consumption decreases then there is a simple solution -further increase the tax. Still better than a tax on income, while the only reason that would have become a problem (short of a major paradigm shift) is that the tax has done its job. An improvement in efficiencies/decrease in externalities can only be a good thing, while the cost of gas at the pump would have been stabilised for the consumer.

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Originally Posted by RandBlade

In the medium to longer term, as consumption decreases then there is a simple solution -further increase the tax. Still better than a tax on income, while the only reason that would have become a problem (short of a major paradigm shift) is that the tax has done its job. An improvement in efficiencies/decrease in externalities can only be a good thing, while the cost of gas at the pump would have been stabilised for the consumer.

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I think that's a bit misleading. Using your system, you can theoretically raise the money you need, but it's going to be at the cost of serious economic harm. As consumption decreases, demand will become more and more inelastic (i.e. the only people using gas really need it). If you keep on jacking up taxes to meet a revenue target, you're going to start eating into this and people will have to pass on prices somewhere. It's inefficient to set these taxes to meet a revenue target - they should always be set to hit a consumption target. You want to reduce consumption to X level, where the revenues will be able to pay for the externalities of said consumption. Trying to raise prices higher than that level will result in a suboptimal equilibrium... since the prices are higher than the costs.

I don't think it's always clear cut, since the alternatives ways to raise revenue might be worse. But we shouldn't just assume that raising the taxes will always have a positive net outcome. (Caveat: I have not studied these kind of taxes in a very rigorous way, so most of this is second hand. Please correct me if you know of studies that contradict me.)

Why not just run a surplus when times are good, and use the savings to maintain the same tax rates when times are rough? :noob:

Responsible fiscal behavior from the government?? How treasonous of you.

I feel duty-bound to inform the current administration of your comments, through that handy hotline for snitching on wrong-thinking political viewpoints. :p

Ironically, that was the policy proposed by Keynes, but it looks like Keynesians nowadays only like to focus on the irresponsible parts of his writings.

Correction: Keynesians today take his writings out of context to make them irresponsible.

I don't think for a second Keynes ever intended for his name to be abused like it is now.

He's written plenty of things that are downright stupid and have been proven to be false. :noob:

A strong argument against doing anything worthwhile, or contributing to society, right there. Given what peoeple do with the wisdom passed down from those who've gone before, it certainly does seem like the best use of one's labors is for money to spend on beer and hookers. :downcast: