Friday, February 17, 2006

Taxes on Gasoline

Oil is the source of most power in the world (not just in the scientific sense, but also in economical and political sense). As countries like India and China get closer to the prosperty levels of the West (still a long way to go far India, atleast) the consumption is skyrocketing (If US with just 4% of world population can consume more than a quarter of the resources, why should people grumble when India and China, representing a third on the population start to consume 10% of the resources). As the oil wells dry up (Mexican oil wells have shown an alarming levels of contraction) and more people becoming affordable to buy a car, there could be scramble for oil and the power politics can worsen. Communist comrades of Venezuala or the clerics of Iran can hold the world to ransom, with their pretty oil reserves, as the world dries up its existing resources. In this existing scenario, why not USA (the biggest consumer of energy) consider taxing Gasoline more...

The principle of tax is that products and services have to pay for the hidden costs that they cause to the society as a whole. Government should tax companies for utilizing the well built education system, the environment, law maintanence etc, whose costs doesnt get accounted in the company's purchases. Similarly, by consuming gasoline the cosumers place enormous stress on the environment and foreign policy and thus, the government should consider taxing the gasoline. For every gallon of gas consumed, the green house gases warm up the world a bit and causes climatic changes worth billions of losses in disaster recovery and farm productivity loss, people in terrorist nations get money to fund their campaign causing billions of dollars in law enforcement and defense, and for protecting strategic reserves the government spends enormous diplomatic resources (like stopping China from buying Unocol or giving sops to Central Asian countries to channelize their oil towards west...).

Thus, oil is too cheap and thus the consumers should be made to pay for many of the costs. So, if the gasoline tax increases by atleast $1/gallon, the government could get hundreds of billions of dollars, which could be used for environmental protection efforts and humanitarian efforts to bring peace in countries like Nigeria and West Asia. This would decrease the consumption and force people to use more efficient cars and could make alternative energy source more closer to being economical.

While entire world relies on public transportation, smaller cars, higher gas taxes, why should America be different?

Read more stuff on:
De Long's blog

NY times article


Sandor Dornbush said...

Gas taxes are a great way to reduce oil consumtion. It has done wonders to move the European economy away from non-renewable resources. Unfortunately it is a sacred cow in American politics and cannot be touched. It is much better to increase the cost now, then to wait for the price of oil to increase later.

Chip said...

So you propose to weaken the US economy? That will be the effect of raising gas taxes. If you weaken the US economy, you weaken those of China and India, as we are the best customer that China and India have.

I'm not saying that we shouldn't make efforts to reduce consumption, but we should let the market control the allocation of resources, not the will of a few who wish to demagogue the issue.

As it stands now, government profits more from the sale of gas and diesel than do the oil companies. Does that seem right to you?