Friday, September 09, 2005

Ben Cline's Really Bad Idea

To ease the impact of high fuel prices, Del. Ben Cline, R-Rockbridge, has called for a 60-day suspension of Virginia’s 17.5 cents-per-gallon gasoline tax. Said Cline in a press conference Thursday: “Using less than 20 percent of the current surplus to suspend the gas tax will help Virginians who are facing tighter budgets due to high gas prices, while providing a much-needed boost to Virginia’s economy.’’

Let's start by addressing the fiscal issues. Warner administration spokesman Kevin Hall said the proposal would cost the state much more than the $146 million projected by Cline because the loss of state dollars would entail the loss of matching federal dollars for transportation. Cline disputed Hall's statement. Regardless of who's right or wrong on that particular point, there is a larger issue...

High prices are the economy's way of telling people to conserve, in this case either by shifting to more fuel efficient cars or by changing their driving habits. When people drive their cars and consume gasoline, they generate costs for society that are not reflected in the market price at the pump. Most obvious is the cost of maintaining and enlarging the state road network -- that's why there's a gas tax. Arguably, this tax is too low as it is. Other costs are less visible and impossible to measure but no less real: the costs of traffic congestion imposed on other motorists, the costs associated with air pollution, the economic costs associated with the U.S. dependence upon foreign oil, and the geopolitical costs entailed by high oil prices propping up noxious regimes like those in Iran, Saudi Arabia and Venezuela.

Gas prices need to reflect the social costs of gasoline consumption and oil dependency. Lifting the gas tax, even temporarily, sends the wrong message and discourages Virginians from re-evaluating how often, and how far, they drive.

Read the story in the News Virginian here.

174 Comments:

At 10:24 AM, Blogger Ray Hyde said...

High home prices are the economy's way of telling people to conserve, in this case by moving someplace else. Housing genetes costs costs for society that are not reflected in the market price. Most obvious is the cost of maintaining and enlarging the infrastructure, schools, and public safety including the state road network --that's why there's a gas tax.

Arguably, this tax is too low as it is. Other housing costs are less visible and impossible to measure but no less real: the costs of overcrowding imposed on other neighbors, the costs associated with air pollution and runoff caused by overdevelopment, the economic costs associated with the U.S. dependence upon foreign labor, and the geopolitical costs entailed by high home prices propping up the US timber industry with tariffs aganst Canada.

Gas prices need to reflect the social costs of gasoline consumption and oil dependency. Lifting the gas tax, even temporarily, sends the wrong message and discourages Virginians from re-evaluating how often, and how far, they drive. At the same time, setting gas prices artificially high causes other social costs that are less visible and impossible to measure.

 
At 1:03 PM, Anonymous Anonymous said...

http://www.cbpp.org/9-8-05sfp.pdf

Not sure if that link will work, but it is to a paper posted on the web by the Center for Budget and Policy Priorities. That group is heavily influenced by the AFL-CIO, but their work is usually readable and non-polemic. An excellent point it makes is that removing the tax, which is imposed at the wholesale distribution point, is no guarantee that the price will drop a corresponding amount at the pump. (The opposite is true, by the way, which is why retailers are very nervous about gas tax hikes -- they might not be able to pass it all along.)

 
At 4:14 PM, Blogger Ray Hyde said...

Jim is right: there is no reason to remove or lower the tax.

The effects anonymous points out have analogies in the effcts of proffers and impact fees on housing costs. If you remove them house prices may not go down, but if you impose them they will surely go up, unless there is a surplus which is not the case in either gas or houses.

 
At 6:47 PM, Blogger subpatre said...

There are good reasons to temporarily eliminate the gas tax, though the move is probably too little and too late. If gas prices were simply increasing, I’d oppose the tax holiday; but that’s not the case.

According to my source, gas prices are in a temporary bubble and will drop sharply once supplies are stabilized. This prediction, made a month ago, appears to be true; and if so, it’s a shame the Legislature waited so long to make this move

There’s a vast number of Virginians that don’t even own cars. There’s a far larger number who marginally own them; people who live from paycheck to paycheck while earning a meager but honest living. Some may be dependent on public benefits.

Whether they’re called the underclass, the poor, the poverty stricken, or the disadvantaged; they are people, they are Virginians, and they are hurt by gas prices. For most of them “conservation” is not an option, it’s how they live day to day.

It’s perfectly reasonable to assume that gas costs 50% higher than normal will hurt people with marginal income; ‘hurt’ meaning drive into unrecoverable debt or unemployment.

It’s time to trot out the little old widow again, the one whose real-estate tax is used to justify everything from proffers to malls and PUD schemes. This time add the 18 year old unskilled, the underemployed, even the poor budgeters.

If the gas prices are temporarily very high, then there’s nothing wrong, and a lot right, with a tax holiday to protect those on the margin.

 
At 8:09 PM, Blogger Ray Hyde said...

Subpatre:

You have changed my mind. You are right, of course. Conservation isn't something you can turn on and off, it has to be built into the system slowly.

I have friends and neighbors in just the situation you describe and I'm ashamed that I didn't think of them first.

 
At 6:54 AM, Blogger Steve Haner said...

The prices we paid last week were temporary, but I wouldn't count on the prices we pay over the next two weeks being temporary. There will likely be a permanent price bump from the damage and disruption on the Gulf Coast. The issue isn't the supply of raw oil, it is the lack of refining and storage capacity. The industry has become very concentrated, but its hard for new competitors to enter the business because of environmental regulators and the NIMBY mindset.

The push for this moratorium seems to be retreating with the gas prices.

 
At 10:56 AM, Blogger subpatre said...

Few people consider just how critical the timing of government decisions is; and just how slow government process is. In this case, the window of effectiveness is closing. If lower-income Virginians are at-risk from short-term price hikes, I can support the tax holiday. But if it's permanently high fuel prices, then the existing aid resources should be used.

Either way, it's a shame to see Virginian's of any type economically hurt by lack of a decent national and state energy policy. Perhaps high fuel prices will prompt a re-examination of the cost of NIMBY and perfectionist environmentalism.

Professor Bainbridge notes one environmental group boasts that they have:
"....always fought bitterly against the United States Army Corps of Engineers." [emphasis mine] One has to wonder if it's a knee-jerk reaction that blindly opposes anything; possible benefits ignored.

I note with pride --not necessarily pleasure at the loss of beauty-- that Highland County Supervisors stood up against protests to approve a wind farm, a small gain to the state's energy supply. That the state's tiniest county is the only one who's permitted a net gain to our energy supply is a disgrace.

 
At 3:41 PM, Anonymous JamesRiverGOP said...

Del. Cline's big idea is as transparent as it comes. It's simply political opportunism in campaign season. He doesn't get that artificially impacting supply and demand has longer-terms impacts. Let the market deal with this situation, and may the opportunistic pols keep their noses out of it.

 
At 9:52 AM, Anonymous Anonymous said...

Steve Haner's argument that the U.S needs more refining capacity is right on point. Even though the county will move away from oil-based fuels, the movement will be gradual. In the interim, we must rely on oil, gasoline and diesel. That requires more refinery capacity.

 
At 12:39 PM, Anonymous Anonymous said...

I'm sorry, I could have sworn that conservatives viewed TAXES as an interference with the marketplace. Wouldn't REMOVING TAXES be getting government OUT OF THE MARKETPLACE???

 
At 9:24 PM, Blogger Ray Hyde said...

Anonymous 1:59

I like that, it's very pithy.

But if we tax all cash flows on an equivalent basis that should'nt disturb the market's choices between alternatives. In that case, getting taxes removed affects the market.

 
At 5:52 AM, Blogger Steve Haner said...

Anon 1:39: But to some of us the motor fuels tax is...a user fee. The more you drive on the public right of way, the more you pay. Don't drive, pay nothing.

 
At 10:24 PM, Blogger John Alexander Golden said...

Well said, Jim. I think this is especially true with my generation (god bless us and all). People don't carpool because they all want to drive their own cars, and end up spending more and more money on gas and clogging up the roads continously, and completely ignore public transportation options.

(Example: most public universities in small towns have some kind of bus system that is free to students, including my alma matter of four months. In fact, most of the major apartment complexes had buses running every ten minutes to campus. Yet, students would still drive from these place sto campus, spending an additional twenty minutes looking for parking, wasting more time and gas.)

We've gotta learn to conserve gas and commute intelligently or else we're all screwed.

 
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