November 5, 2008

Gas Tax


Now that all that endless election foolishness is finally over, we can finally attempt to focus our attention beyond all the indulgent campaign promises and onto what's best for the country, the world, and Baltimore. President-elect Obama won on the most far-left platform in American history, and has emerged as a master in telling voters what they want to hear, but audaciously and hopefully, he can channel his prodigious political talents in a productive direction.

Remember way way back a few months ago when gas was over $4.00 a gallon? Remember the brief time when high priced gas was the crisis du jour? This was just after the Iraq war ceased being the #1 issue, until we finally figured out that we were actually winning the Iraq war and that our collective venom against President Bush should actually be channeled from a different direction. And it was just prior to the time when the financial crisis became the cause of the day, which came on so suddenly that our politicians actually had to pass specific legislation to address it while Obama and McCain spoke as vaguely on the subject as possible.

Recall that John McCain and Hillary Clinton had both endorsed the boneheaded idea of a "tax holiday" that would have temporarily repealed the federal gas tax, at the precise moment when the market demanded the most discipline from motorists in order to send a message that Americans would not just pay any exorbitant price that the oil sheiks tried to extort from us.

But $4 gas actually caused motorists to DRIVE LESS. This amazingly caused the oil sheiks to panic, and as a result, the barrel price of oil has dropped to less than half its peak. Crisis solved. McCain and Hillary would have sent precisely the opposite message to the oil market and Americans would have continued to guzzle as much gas as they could, propping up the extortionate prices. That extortion goes far beyond America. The United Nations "oil for food" program was a prime example of black-market under-the-table negotiations between Saddam Hussein and various oil starved countries to deliver oil at any cost.

President-elect Obama deserves credit for not jumping on the "tax holiday" bandwagon, although his prudence required him to do absolutely nothing, so it's hard to say what, if anything, this demonstrates.

Now that Obama has been elected, it is time for him to show true leadership. Leadership is defined here as the act of saying and doing things that may not be immediately popular, but which need to be done. During the campaign, Obama did not demonstrated much of this kind of leadership. He has constantly preached to the choir and told a Bush-weary electorate just what they wanted to hear.

On the other hand, President Bush will ironically go to his grave clutching his victory in Iraq as something that he can fully ascribe to his "leadership", since most of America and the world now seem to hate him for it. Of course, history will render the final verdict on this.

But it will be impossible for President-elect Obama to continue preaching to his choir. For one thing, the American people are fickle. At the beginning, they gave Bush wholehearted support for his Iraq war, and then they chose him over Kerry in 2004 before they turned on him. Secondly, hints have already been made of the fiscal realities which will inevitably delay Obama's more extravagant campaign promises of free money, free health care et al for the huddled masses.

Obama has already planted the seeds of mixed messages to come. He seems to really want the world to love us, and wants to reach out to our alleged enemies, but he has also strongly alluded to protectionist measures to prevent America from participating and contributing fully in the new world economy.

Obama has also focused his economic platform away from measures to actually grow the economy, which could be interpreted as "sucking up to big business interests", but instead on simply reslicing the American Pie in a way which would somehow take away from only the top 5% and give to the other 95%. Any decent economist can tell you that it's not that simple.

Sooner or later, the political speeches and promises will fade and it will all come down to leadership.


The price of gas in Baltimore has now gone from a high of over $4.00 a gallon this past summer to as little as $2.17. This is a marvelous example of the wondrous hand of the free market at work. A modicum of conservation, along with new focus on future alternative fuels and the discipline of a slow economy have finally worked together to impose some restraint on world oil prices.

This is great news for the economy, the environment, the tense global geo-political situation, and for folks trying to balance their personal budgets.

But now that gas prices have returned to below pre-Katrina levels, there is a new tendency for motorists to loosen their belts, go "aaaahhhhh", and return to their old gas guzzling ways. This is bad for the environment, bad for the economy, bad for alternate fuel development, and will give the world oil sheiks new resolve to hold steadfast on their extortionate demands - both economic and political.

It is also bad for places like the Baltimore region, which will now face renewed pressure to build and widen more highways out into the countryside in response to more traffic and congestion. It also severely jeopardizes our feeble attempts to build a transit system which can lure people out of their cars and into new urban redevelopment.

Ironically, high gas prices are good and bad at the same time. This is the kind of situation which is not amenable to populist political grandstanding. It requires leadership.

Simply put: The per-barrel price of oil should ideally be low, and the per-gallon pump price of gas should be high. This will provide the maximum benefit to the economy, the environment, world political stability and the transportation system.

The gap between these paradoxical prices can be bridged simply by a gas tax. President Obama needs to use his leadership to propose a major new tax on gasoline at the pump so that a large price gap can be created between the world and domestic oil prices, so that this money will stay in the domestic economy and out of the hands of the world oil sheiks.

This is not money that should be used to loosen the standards for government giveaways for mass transit or alternative fuel research or anything else. All of these initiatives need to be held to the highest possible standards. We should not create various federal slush funds that must be spent or lost before they burn holes in our collective pockets. This whole notion of a national "infrastructure crisis" looks suspiciously to have been cooked up by the construction lobby, which longs for the good old days when the Interstate Highway program was still in full swing. The so-called "infrastructure crisis" allowed $15 Billion to be wasted on Boston's big dig, and almost gave us Ketchikan's "bridge to nowhere", while the fuel crisis gave us the ethanol fiasco that raised food prices. Every transportation and energy development project must stand or fall on its own merits, and not be subject to an undisciplined "use it or lose it" funding pool.

Capital will inevitably be attracted to efficient transportation and alternate fuel development projects when the pump price of gasoline is allowed to rise to levels that make them viable and efficient, and no sooner.

The new gas tax money rightly belongs to the people, so it should be given back to the people - the same ones who are resolutely tightening their belts and conserving.

This is where Obama's tax pie reallocation comes in. Yes, it's a way-left wing concept. Reputable economists scoff at the Obama doctrine that the economy grows "from the bottom-up". Obama's tax plan may look suspiciously like a cynical ploy to buy votes by ganging up on evil fat cats, but in combination with a gas tax, it could work out perfectly and conform to sound capitalistic principles. President Obama's tax cuts should be targeted to correlate as closely as possible to the amount that taxpayers would be paying in additional gas taxes if they maintained wasteful gas consumption habits. Then if they cut down on driving or didn't drive in the first place, they would make money both by buying less gas, and by paying less tax. We would share the wealth through conservation.

President Obama will enter the White House with a long line of so-called friends waiting for free money for various projects and paybacks. The country cannot afford this.
But the country proved only a few months ago that we can swallow our gasoline appetite and deal with a price of $4.00 per gallon. And we will be able to do it much more palatably when we know that the money will be coming back to us instead of enriching the oil sheiks of the world.
So President Obama should immediately propose to phase-in a major new gas tax that will be rebated fully to the American people to fund his promised tax cuts.
This will immediately unleash both private and public capital for efficient transportation and alternative fuel development, based on the confidence that the pump price of gasoline will be high enough to support these projects. Without this confidence, initiatives like windmills and light rail are doomed to operate merely at the margins, or be stuck in dreamland, like magnetic levitation trains.
It will also suppress the world barrel price for oil, with the market confident in the knowledge that the suppression of oil demand will be permanent, and no longer riding on a constant wave of price and demand fluctuations. It will also suppress the demands for political extortion by the oil sheiks.
The new gas tax should also be the first step in a transition to national taxation based predominately on consumption rather than production. Taxes need to be imposed on economic inputs rather than outputs - on scarce resources rather than disincentives to growth. Income taxes discourage precisely the production which our economy thrives on. Consumption taxes reward production which grows the economy, rather than penalizing people for being productive members of society.
So sing bye, bye, Miss American Pie... Don't drive your Chevy to the levy, 'cause the levy is dry. Instead, buy and drive a bigger, better slice of pie.


  1. I agree 100% that gasoline prices need to get a lot higher domestically and internationally, as we need to keep demand for oil low on a global scale.

    However, I'd be surprised if there's room for a gas tax in the coming 24 months, as I think we'll see the price of oil start climbing any day now, and it's not going to stop at $147/barrel.

    We've passed peak oil production globally, which means it is going to get more and more expensive to produce each barrel of oil from here on out. Additionally, it will likely be impossible to keep up our 85 million barrel/day production level. Many experts have pegged production capacity diminishing ~3% annually, with some pessimistic observers claiming ~9% annual decreases. Check out the wikipedia page on peak oil.

    Constant demand and dwindling supply results in the market price going up.

    This is complete conjecture, but I suspect that certain nations started flooding the market with their Strategic Petroleum Reserves over the past few months to lower the price of oil, in preparation for a peaceful, legitimate transfer of power. I also suspect that spigot will be closed shortly, and we'll see oil start it's climb again.

    So don't worry, there's going to be a LOT of attention dedicated to transit and local economies in the next decade.

  2. Thank you, Steve, for providing a needed long term perspective. But the time to consider a big gas tax is now, when prices are low and while Obama is still in the adoring media and public's good graces (an understatement). If we wait for the barrel price to rise again, we will have blown this golden opportunity to do it on OUR terms, keeping the revenue in our hands, rather than the oil sheiks. Nobody in power seems to be thinking about the long run anyway. Certainly not the oil sheiks (look at the behavior of Saddam Hussein, who had no long run at all except death), or anyone else flooding the market with either production or "strategic reserves", and not Obama or McCain during the campaign. Steve, you've also underscored the huge market volatility, which a gas tax would do well to cushion by conditioning us to reduce demand now.

  3. It's good to know that I'm not the only one who's been hesitant of the reduction in gas prices. I thought well here we go, to everyone using their gas guzzling SUVs and the alternative fuel that's been promised will be shelved for another 30 years. As much as it hurt me to pay $4.00 a gallon I was glad it was happening because it made people angry, angry to ride mass transit and consider alternative forms of energy. People need to hold a grudge against the economy for allowing this to happen so they can pressure their elected offcials to fund more eco freindly alternatives. Long story short, the consumer itself needs to have a louder voice than the corrupt lobbyists who actually draft legislation.

  4. Obama has already made lending for middle and lower class citizens before he's in the white house! Amazing, read more below..

    New Types of Low Interest Loans & Grants from Obama

  5. Postscript - I paid only $1.419 per gallon for my last fillup on Nursery Road just inside the Beltway. The price was $1.449 on Russell Street near Camden Yards. Several weeks earlier I paid $1.389 in Virginia. The oil sheiks have made absolutely no secret of their displeasure at the low price of oil, and of their desire to raise it to intimidate the civilized world and suck billions out of our economy. Meanwhile, Obama has made his intentions clear that he is just going to sit back and let them do that.

    Barack Obama's economic bailout plan looks exactly like President Bush's plan - tax cuts and runaway spending. The only difference is dire pessimistic rhetoric to lower expectations so that he can blame all misfortune on Bush and take credit for any meager improvement.

    "Meet the new boss, same as the old boss" - Pete Townshend, The Who: "Won't Get Fooled Again".