Saturday, January 12, 2013

Gas Is Cheap!

After paying more than $4 a gallon for most of the year due primarily to speculation on supply shortages from various refinery incidents, the precipitous drop in prices has been welcome. But is it really a good thing?

Right now, prices are hovering in the $3.20- $3.25 range locally. Analysts also expect prices to stay low for most of 2013 due to low demand and ample supply. As much as I want to save a few bucks on my fuel bill, I think that allowing prices to stay low is a mistake.

Consumption is only low because prices were high. As people get accustomed to the lower prices, they will begin to drive more. I think the government needs to address the antiquated method used to support the national highway system.  Currently the Feds collect a pittance on each gallon of gas which is put into a fund that pays to maintain roads and bridges. That fund is inadequate meaning the money comes from other areas and must be debated in Congress which simply adds delays and more cost.

As we all know after the I-35 Bridge Collapse in MN and the subsequent flurry of inspections, most bridges are failing and failing because we simply dont have the money to repair them.  Right now,  the entire country is in a tizzy trying to figure out how to control the debt.  The gas tax has not been raised since 1992 and the price of materials and labor to maintain the roads has nearly doubled.

What we really need is the ability to create an adjustable gas tax.  The recent fiasco in Congress is a perfect example of how hard it is to legislate any kind of permanent increase that involves the tax payer and his wallet.  So what about an adjustable tax?  This allows flexibility in a very volatile market.

The cost associated with the oversight and enforcement would be small compared to the income and will encourage people to drive more efficiently and make high efficiency vehicles more attractive.

Currently the federal gas tax is 18.4 cents (24.4 cents for diesel) per gallon. With state taxes added the cost ranges from 26.4 cents (Alaska) to 69.7 cents (New York)  and a national consumption (138 Billion gallons in 2010) the government has the potential to

** Wean Americans off gasoline

** Raise an additional billion dollars in revenue for each penny the tax is raised

** Insure a more robust and flexible fuel supply for the future due to reduced demand.

First off, the base gas tax should be raised (it has not been raised since 1992) by at least 10 cents a gallon.  Then a set point should be determined where the gas tax is adjustable should the national average fall below the set point.  For example, a set point of $3.50 a gallon.

The national average is about $3.31 a gallon. A permanent 10 cent rise in the gas tax would put the national average around $3.41 a gallon, then another nine cents would be adjustable.  Now, before we scream that we cannot afford even a penny more at the pump, lets examine what is likely to happen.

In the spring of the year, a refinery in the Pacific Northwest had a fire that disrupted the supplies of fuel in the area. The refinery did provide a lot of gas for consumers but primarily provided jet fuel for the airports in the region.  Immediately gas prices shot up over $4 and stayed that way until mid Summer.  The prices went up over speculation of feared shortages that never happened. What essentially happened was a several billion dollar windfall for the already rich oil companies.

This adjustable tax is a way of combating that scenario. What does happen is high prices will force people to use less gas which reduces consumption and prices will fall. So what looks like more money out of our pocket is really only more money out of Big Oil's pocket.

The above scenario despite more than doubling the national gas tax income is equal to approximately the profit level of Exxon for a single quarter last year.  Since the indirect burden of the gas tax would be split among several different oil companies, I think they can afford it much better than we can.

1 comment:

  1. Dave,
    My grandfather used to own a gas station back in the '50's. When I was growing up he always said we should have a $1.00 federal tax on gas. His idea wasn't to use the money for the roads, which were still new at the time, but rather to invest in alternate energy.

    Where would we be today if $1/gallon had been invested 40 years ago? We would be where every president since Nixon has demanded. We would be energy independent.

    $1/gallon today would get us there, in 40 years.