Tuesday, August 30, 2011

More Tax Revenue for Government ... Raise the Gas Tax Dramatically

The Clear Case for the Gas Tax urges politicians to maintain and even increase gas taxes when current legislation expires at the end of September. Unlike most other ideas about raising taxes, this one actually makes sense.

{We'll set aside for now the "regressive" nature of gas taxation herein, even though raising gas taxes meaningfully would have a disproportionate impact on those who are poor. The underlying assumption being used is that the regressive impact of the additional gas tax would be offset by adjusting other taxes, such as income taxes, to achieve the desired equitable result.}

In fact, we should implement up to a $2 per gallon increase in the federal gas tax, which would in turn be offset in its entirety by income tax reductions. This rather extreme idea admittedly is not likely to be embraced by either Democrats or Republicans. Since I'm not running for elected office, however, please listen to the straightforward logic behind such an "outrageous" proposal.

As background information, gas taxes at the federal level of 18.4 cents-a-gallon haven't been increased since 1993. My proposal would be to increase them over time to $2.184 cents-a-gallon.

Simple common sense and elementary economics suggest that, all other things being equal, if we charge more for something, we'll buy less of it. And similarly, if we charge less, we'll buy more. That holds true for both taxes and consumption.

At the margin, accordingly, if we increase the tax on work and investing, we will get less of it. Thus, the higher we raise income taxes, the less people will be inclined to work and invest. The logic works equally in the other direction as well. The more we lower the income tax, the higher will be the work and investment.

Now let's apply the exact same logic to oil and gasoline pricing and consumption. Raising gasoline taxes would generate more government revenue and less oil consumption, resulting in fewer imports of foreign oil from our "friends" in the middle east and elsewhere.

The politicians don't seem to want to allow the oil companies to greatly expand drilling for more oil and gas domestically, so let's use less of it instead. Much less, in fact.

To offset the negative impact on this tax increase on the economy, any dollars generated from higher taxes on oil and gas consumption would be used to lower income tax rates. Thus, we'd end up with a clearly positive effect on the overall growth prospects for the U.S. economy.

As a separate but related matter, we could ask the taxpayers how they feel about more domestic drilling and the jobs and oil it would bring to our economy, too. There is no doubt in my mind that most people would vote to increase drilling if given a chance to do so.

So here are the top ten reasons behind the raise the gas tax dramatically proposal. Maybe you have others.

(1) Less oil and gas consumption resulting from (2) higher domestic drilling and (3) less foreign oil imports combined with (4) higher oil taxes of several dollars per gallon offset by (5) lower income taxes gets us a (6) faster growing economy that is less dependent on (7) buying oil from our "friends" in the middle east and elsewhere, thereby (8) making us less dependent on foreign oil and (9) enabling more Americans to stay home with their families and go to work rather than go to the middle east and (10) be in harm's way while there.

To recap, the idea is simply to do the following: Increase gas taxes by several dollars per gallon and offset that additional revenue with an income tax reduction, thereby encouraging more of what we want (work and investment) and less of what we don't want (foreign oil).

Then we could add to the foregoing the good sense of the voting public and increase domestic oil and gas drilling at the same time.

This would all tend to lower the overall price of imported oil considerably and maybe "sober up" our friends from the middle east at the same time. In turn we would provide more domestic jobs and a lesser need to send troops to the middle east to protect our so-called friends so OPEC can raise our gas prices, thus harming our national security and economic growth as well.

See how simple, if not easy, things like this could be if we had a little leadership in Washington?

Thanks. Bob.

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