Archive of an article in dhblog blog
Post Katrina: the need for a gasoline tax
2 Sept 2005:The Need for a Gas Tax
Before Katrina, the U.S. faced a crunch in gas supplies primarily due to a shortage of refinery capacity. After Katrina, this bottleneck got even tighter.
What this means, is that the supply of gasoline (to the entire nation) will be diminished, and there is very little that can be done about it. In particular, increases in the retail price of gas will not induce a significant increase in gasoline supplies (though imports of gasoline may be somewhat responsive to this price increase).
Therefore, the most fundamental principles of economics tell us that something has to give -- demand exceeded supply before, and its even worse now. Roughly speaking this imbalance can be resolved using two mechanisms.
What this means is that in order for demand to equal supply, consumers must pay this price. Anything less, and demand exceeds supply, and we have gas lines etc. (a form of rationing). If you do not want gas shortages, then consumers must pay this price. Must.
However, it does not matter what makes up this equilibrium price. In particular, it does not matter what fraction of this price is composed of gas taxes. Gas taxes could 0, 10, 50, 80 percent-- the key point is that the conusmer ends up paying the equilibrium price.
There is no escaping this.
Sadly, in the kneejerk anti-tax public mindset, this message would probably be lost in cries of anguish. What may be more presentable would be a windfall profits tax, levied against the oil companies. And while it won't be as efficient as a retail tax (since there are so many ways to hide profit), at least it will redirect some of this expenditure to the public sector (I am assuming that most people, me included, would rather see the government get this windfall). And it will do this in a way that does not effect the retail price -- the standard shibboleth about "if you tax us, we will just past the tax onto the consumer" does not hold in this situation.
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