Justin Suk

ENWR 380

Brochure: Gas Tax

What Exactly is the Gas Tax?

Currently, in the United States, each individual state government sets the rate of

the gas tax, a sales tax. The average state currently charges a tax of 28.6 cents per gallon.

This brochure will try to convince you, the voter, into supporting a nationwide federal

sales tax, on top of the current state tax. We believe the price of gas is too low and should

be raised by instituting this change. Although many people dislike taxes, they will

increase the general welfare of all Americans. The government’s passing of this added

tax will lead to a decrease in pollution and traffic. The government should also see a rise

in tax revenue, which can be used to lessen the budget deficit, which left untouched

would put a huge burden on our future and our children.

Free Market Failure And Why Gas Is Too Cheap

Americans pride themselves in having a free market system, one relatively

untouched by socialist and communist ideals. America is the wealthiest country in the

world, in terms of GDP, and the most powerful. People attribute this success to the

American work ethic and our economic system. If the system works, why tamper with it?

Capitalism works, but it is prone to failure under certain circumstances. All economists

understand that the free market handles externalities poorly. For example, when people

smoke cigarettes they not only harm themselves, but they also harm those around them.

Non-smokers dislike the smell of cigarettes and the negative health effects caused by

them, like lung cancer or emphysema. A free market, however, would not factor these

costs in the price of cigarettes. Since these added costs are not considered, the price of
cigarettes would be low, and more people will consume them. Everybody else, who

dislikes cigarette smoke, would be worse off. This phenomenon, where one person’s

action affects another person’s well being in away that is external to the market, is called

a negative, consumption externality. To solve this problem, the government can intervene

and charge a tax that accurately reflects the real cost of the good, the real cost to society.

The price of gas and consumption of gas suffers from these same exact problems.

The Environment

Whenever you drive, your car burns gallons of fuel and, in the process, emits a

large number of pollutants, including carbon dioxide, a type of greenhouse gas. These

types of gasses absorb the Earth’s long wave radiation and trap them in the earth’s

atmosphere, causing the earth to get warmer. An increase in the earth’s temperature

would lead to the extinction of thousands of animals and humans, especially in Africa.

What if I don’t believe in global warming?

Even if you don’t believe in global warming, we can all agree on something else.

Cancer, smog, and poor air quality—all are things we don’t want. During the Beijing

Olympics, people complained about the pollution Olympians wore gas masks outside;

Tourists complained about coughing up black mucus; people had a hard time breathing;

an ominous black fog of smoke covered the city on some days. Burning of fossil fuels

also release carcinogens into the air.

Other Negative Effects

When gas is cheap, people drive more. When people drive more, the roads get

crowded. And we are all left stuck in our cars frustrated, aware of the fact that we are

wasting our time, which could be better spent with our children and loved ones. During
rush hour, on real bad days, I recall it taking me over an hour and a half to travel ten

miles. Gridlock this severe can also negatively affect the economy, not just our sanity, by

decreasing productivity.

Our roads and bridges are in poor shape. Not too long ago, a bridge in Minnesota

collapsed and killed the lives of many Americans. Our roads are full of potholes and

cracks, while others just need to be expanded. Gregory Mankiw, an economics professor

at Harvard, states that a “$1 per gallon hike in gas tax would bring in $100 billion a year

in government revenue and make a dent in the looming fiscal gap.” Some of this money

can also be used to help repair our roads and bridges. It makes sense that people who use

the roads and bridges should be the ones who pay to fix them. The roads should also stay

well maintained for longer amounts of time, due to the rise in gas prices, which cause

people to drive less.

People react to changes in prices. During the summer, when gas prices were at an

all time high, people drove less. The gas tax would cause the price of gasoline to increase

and have all of the beneficial results, as described above.

Why Don’t You Just Tax The Oil Companies?

In 2008, Exxon Mobil reported record profits of $45 billion, while Chevron

reported record profits of $24 billion. Why should I have to pay this tax? Why doesn’t the

government just tax the profits these big oil companies, who are making these huge

profits? Simply put, taxes on oil companies are just taxes on the American consumer.

They are just better disguised. When taxes are place on these oil companies, they will just

rollover the cost of the tax to you, the American consumer, by increasing the price of gas.

Now, you might be wondering why don’t we just do this if the results are the same? The
thing is they are not the same. These types of taxes, known as windfall taxes, would be

much less effective than the gas tax, a consumption tax.

Unanimous Agreement

Economists disagree about a lot of things. Some Nobel Laureates believe that the

fiscal stimulus package will have no effect on the economy and other Laureates believe it

will help us get out of a recession. This is not one of these decisive issues, though.

Economists from the University of Chicago to Berkley unanimously agree that the price

of gas is too cheap and that a rise in the gas tax will better the lives of most Americans.

Partisan Politics?

This is not a liberal or conservative issue. People in both camps support an

increase in the gas tax. Allen Greenspan, former Chairman of the Federal Reserve,

appointed by Ronald Reagan, supports the raising of gas taxes. Gregory Mankiw, an

Economics Professor at Harvard and former Chairman of the CEA, appointed by George

W. Bush, strongly supports a rise in gasoline taxes. Paul Krugman, a Nobel Laureate and

writer of the blog a Conscience of a Liberal, also supports the rise in gasoline taxes.

A Gas Tax Holiday

During the Presidential Primaries, John McCain and Hilary Clinton supported the

idea of a gas tax holiday. They wanted to suspend the 18.4 cents a gallon federal gas tax,

during certain times. Obama, who was then still running for president, disliked the idea

and rightfully so. If the government temporarily suspended the federal gas tax, gas prices

would have dropped and exacerbated the problems detailed above—pollution, traffic

congestion, and increased wear and tear on our country’s roads. Although the idea of a

gas tax holiday sounds appealing, the real, long-term costs of cheap gasoline far outweigh

the benefit of saving a few dollars.

Current Administration’s Thoughts

Although President Obama disliked the idea of instituting a gas tax holiday, he

opposes an increase in the federal gas tax. He is quoted as saying, "Putting additional

burdens on American families right now, I think, is a mistake.” Speaker of the House

Nancy Pelosi shares similar beliefs.

What Does the Average American Think?

The average economist supports the idea of raising gas taxes, but the average

American does not. As of July 2007, “only 5% of those polled said they support creating

a tax on driving.” The idea of raising the federal gas tax is an extremely unpopular idea

among voters and elected officials, but it is a good one. Voters should fully consider all

the benefits associated with a rise in these taxes and realize that these taxes do more good

than harm. Voters need to realize that a decrease in pollution and traffic and productivity

and wear on our roads outweigh the costs of the tax. In order to achieve these measures,

you should write to your congressmen and implore them to raise the federal gas tax.

Works Cited