The Economist: “Rock-Bottom” U.S. Gas Tax Makes Gas Cheaper Than Water

Gas prices are up to $3.23 a gallon this week, according to AAA. But before drivers complain about “pain at the pump,” they should compare U.S. gas prices to those in the rest of the developed world. A liter of gas costs about 80 cents. A liter of Fiji bottled water costs about $4.00.

According to Ryan Avent at the Economist, the low prices are “almost entirely due to the rock bottom level” of gas tax rates in the U.S. Avent goes on:

The low cost of petrol encourages greater dependence; the average American uses much more oil per day than other rich world citizens. This dependence also impacts infrastructure investment choices, leading to substantially more spending on highways than transit alternatives. And this, in turn, reduces the ability of American households to substitute away from driving when oil prices rise.

The gas tax brings in far less than it did back in 1993, the last time it was raised, because of greater fuel economy in cars. And it’s a set price and not indexed to gas prices (which are three times higher than they were in 1993.)

Avent concludes, “It’s hard to take any fiscal hawk seriously so long as this measure isn’t on the table. It’s as close to a win-win solution as one is likely to find.”

The idea may be finally gaining traction. Everyone from the deficit commission to some U.S. Senators are warming to the notion that a gas tax hike is the best way to pay for the ambitious transportation agenda that President Obama laid out and finally address some of the country’s backlogged infrastructure needs. According to our back-of-the-envelope calculation, we estimate that we could raise $556 billion over six years by roughly doubling the federal gas tax (bringing it up to 39.3 cents a gallon for regular gas; 52.2 cents for diesel). And it would still be puny compared to other developed nations.

Business Insider magazine has an editorial today called, “It’s Time For a Gas Tax.” Tom Friedman proposed a one-dollar gas tax hike in the New York Times this week. Indeed, you could add a dollar to our gas tax and gas would still be a bargain compared to some countries. But it could be just enough to encourage more sensible transportation options.

33 thoughts on The Economist: “Rock-Bottom” U.S. Gas Tax Makes Gas Cheaper Than Water

  1. It’s hard to take any foreign policy hawk seriously without an increase either, since we have a situation that encourages not only fossil fuel intensive transportation but a dependence on foreign supply.

    Speaking of dependence, the “green” Northeast is far more dependent than the rest of the country on heating oil rather than cleaner burning, domestically projected natural gas.

  2. Good luck getting this passed.

    “The American people can’t take another tax!”

    Of course, it’d help, if we didn’t structure our lives, literally, around having to use the automobile.

    Thanks governors of Wisconsin, Ohio, and Florida, for nixing HSR!

    So in 30 years, when gas is $10/gallon, poor shlubs in those states will still be throwing money away on gas.

  3. Sadly Americans feel over taxed. It will never happen. MAybe if our taxes went to the rigth places not war or the military we could feel better about paying them.

  4. Is it a given the fuel economy is better now than in 1991? My old 1986 Honda Civic got 45 miles/gallon and had less than 100 hp. you couldn’t find a vehicle with that low horsepower now…

  5. And we wonder why we’re addicted to cars and our rail, bicycle, and pedestrian infrastructure sucks ….

    Significantly raising the gas tax is *absolutely* necessary if the US is going to start developing sustainable and livable cities.

  6. One would have thought the time to do this was a year ago, when the average price of a gallon was more than a half-buck cheaper. But waiting isn’t going to cut it. Can common sense trump our national obsession with pain avoidance? Where’s the “these colors don’t run crowd” now?

  7. Ya know,

    They really should’ve rolled out HSR in connection with an incremental gas tax (meaning, in year 1, it’s only up $.02, but, by year ten, when HSR is up, it’s up $1.00/gallon.)

    Linking the two issues is crucial, IMHO.

  8. Wait for the burning the BIG SUV’s(a/k/a selling your car to your insurance carrier because no one will buy it), or rationing(with shootings at the gas station–right here in Brooklyn). Anyone remember?
    It was in all the newspapers.

  9. But isn’t this tax actually stimulative to investment? If you told an alternative-energy investor that gas would never fall below $x/gallon, any project that was competitive at that level of $x would get funded. Bloomberg magazine published an article a few months back about all the alternative energy ventures that needed high gas prices to be competitive.

    Conservatives would be all over this if they realized that taxing gas would also mean stimulating investment in another part of the economy. There’s probably even a report out there on how this would be a net positive for the economy.

  10. The problem isn’t that Americans are undertaxed, the problem is the tax is applied stupidly. For example, business taxes are among the highest in the world, so unless you fall into a category with strong lobbying for loopholes, it becomes expensive to hire people here. But it’s cheap to burn fuel here. “Make something more expensive and people will do less of it.” So apparently we want people to drive more, but create fewer jobs.

    Shift more taxation to the consumption side, free up taxation from the production side, and our economy would be in much better shape.

  11. Well this is slightly an apples/oranges comparison. Isn’t Fiji among the most expensive bottled waters? Doesn’t it get transported across the Pacific? I think 4/litre for Fiji Water is a bit high. (and you’re a fool to be paying it)

    But the real point here is that maybe this pricing is correct. I’m not saying we should have cheap gasoline, but I am stressing that water may have a greater value as a resource since life ceases without it. We have it lucky in the U.S. that we have both adequate water supplies and clean water systems, a situation that is not true around the world. Tap water remains dirt cheap as compared to the cost of its preparation and delivery.

    As for a gas tax, I won’t hold my breath. I heard this morning (NPR) that Congress has discussed asking Obama to open up the strategic oil reserves, a move that should never be done on economic reasons alone. The market must find an equilibrium price for gasoline, whether it’s 3.50 USD/gallon or 5 USD or even 7 USD.

  12. Of course, the graph is incomplete without a corresponding graph of per capita oil consumption, or a corresponding graph of per capita fuel consumption for transportation. The big European countries consume about half as much oil per capita as the US, and the consumption is especially low in transportation, where each of the three factors involved – vehicles per capita, vkmt per vehicle, fuel consumption per vkmt – is about two thirds as high as in the US.

  13. I wish this would happen, if only so I could hear the complaints from the SUV crowd. Costs you $60 to fill up your truck? Cry me a river. Get a city-appropriate car next time.

  14. “Costs you $60 to fill up your truck?”

    It already costs me $60 to fill up my compact car, in California. So I haven’t used it much lately.

    Many trucks, with their 25 gallon fuel tanks, will be pushing $100 per fill-up by this summer even without a gas tax increase.

    The question is, do we want to spend $4 a gallon and send it straight to despots in the Middle East, or do we want to keep it here to pay for transportation infrastructure and get rid of government deficits?

    Even in California, where we have a 25 billion hole in the budget, a $0.25 per liter (1 buck per gallon) tax would solve the whole deficit problem. According to that graph, this would still be less than half of any gas tax in Europe.

  15. “It already costs me $60 to fill up my compact car, in California. So I haven’t used it much lately.”

    Good point. We’re pushing $40 already in a Scion xA, which is pretty much as small as they come in North America.

  16. If we really want to eliminate dependence of fossil fuels then an increased gas tax is the only way, provided it’s done correctly. I think we should raise the gas tax 50 sents per year going out at least twenty years. After that, raise the rate each year indexed to inflation. This will give the market time to adjust. It will also fund HSR as a replacement for both long distance driving and air travel. Ultimately, if we’re successful the revenue from the gas tax should follow a bell curve. It might peak about 10 years from now, then start tailing off to close to zero within 2 decades, at which point gas stations will only exist as museums to a defunct lifestyle. The goal should be to get completely off fossil fuels in 20 years time. We can do it with a combination of nuclear/solar/wind power, HSR, electric cars/trucks, mass transit, cycling, walking. Also, we should change the real estate tax structure to discourage low-density settlement. It isn’t just the dependence on fossil fuel for transport which is the problem. It’s also the sheer number of miles many need to travel every day just to go about their lives.

  17. Gasoline is amazing stuff. One gallon of gasoline burned in an internal combustion engine can produce work equivalent to 120 hours of human labor. (And remember, internal combustion engines are grossly inefficient. We’d be much better off burning the stuff at a power plant to make electricity that is then used in highly efficient electric engines.)

    Right now we value this three-weeks equivalent of human labor at 2-3 cents an hour. Our children will weep when they look back at the energy we squandered so thoughtlessly. Our grandchildren will just think we were idiots.

  18. <$30 to fill up my Smart ForTwo, which I only need to drive about 5000 miles a year thanks to daily bicycling and wintry public transit.

    I use the car for what it does best: *heavy* cargo up hills (my bike handles groceries just fine), unexpected *distant* travel (bicycling is often the better choice over short distances on tight deadline), and escaping the city to the country.

    It also means that all things being equal, I should be able to use my car at least twice as long as average, and far longer than industry analysts prefer.

    My experience shouldn't be rare.

  19. “Make something more expensive and people will do less of it.”

    Actually, given the horrific environmental impacts of oil extraction and refining, it would be even better to tax oil directly at the source: when it is being extracted and then refined. That way, not only does gasoline become more expensive, so does all the plastic trash we don’t need.

    “Shift more taxation to the consumption side, free up taxation from the production side, and our economy would be in much better shape.”

    No, you don’t need to tax the “consumption side,” working people’s incomes have been declining steadily. People ARE “Taxed Enough Already,” to quote Sarah Palin: that’s why the Tea Party has appeal. We can have a stronger impact by taxing the OIL PRODUCERS at the source: the oil companies have the highest profits of any industry, so they can afford it. Yes, they’ll pass along part of the cost, but part of it will also come out of their profits: “United We Stand,” right?

    That is what we should do.

  20. While I agree that we absolutely need to move away from fossil fuel overconsumption, any flat tax on consumables used by all sectors of the population is regressive. The outsized carbon footprint of US residents is only one of the many serious flaws we currently face; vast increases in wealth inequality is another (and it’s not unrelated to carbon footprints). If we’re to advocate a gas tax increase, we need to come up with a way to avoid making it regressive, thereby increasing wealth and income disparities. For example, vouchers could be issued for those below certain wealth (not just income) levels; tax credit or rebate schemes could be explored, etc.
    In order to build popular support for environmental action in the face of the constant corporate propaganda against it, we _must_ develop a class consciousness.

  21. Erik Mar has a valid point about a gas tax being regressive. This is one reason (among many) that a true carbon tax would be much preferable to a gasoline tax. Since it would tax all kinds of consumption that use energy, it would be much less regressive. However, it’s not going to happen in the near future.

    There may be room to add some rebate schemes to a gasoline tax to mitigate its impact, but I’d hate to see that scuttle getting any kind of rational gas tax passed at all. Better to address income inequality in the taxes that go directly to it (capital gains, investment income, soc sec, etc.) Gasoline taxes are usage taxes and I’m not sure we gain much in the long term by subsidizing this usage by the people who can least afford it.

  22. Tax breaks are what got us this problem. American politicians are to quick to offer a break instead of a higher tax for more wealthy citizens. This could be done for VMT on a 1040 tax form. Enter odometer readings during the start of the year, then the final number at the end of the year. Percentages will be automatically calculated from your tax bracket. If you think fraud will be an issue, I can tell you there are plenty of other parts of the tax form that can be fudged, and people have gotten jail time for that sort of thing.

  23. @Erik: the benefits of a gas tax are highly progressive. The air pollution coming from cars affects the poor disproportionately: asthma is highest in poor neighborhoods, as the residents can’t afford good medical care or housing away from major freeways.

  24. Peak oil and peak credit (both now past their peak) means the poor are very quickly going to be priced out of both gasoline and car ownership. The cost of owning and maintaining multiple cars is also going to strain the middle class, and many will soon be looking for public transit options we haven’t had the foresight to invest in. Keeping the price of gasoline as low as possible for rich people makes no sense, but we spend oodles of public money subsidizing wars, the oil industry and ethanol to do exactly that. Also remember that two third of our trade deficit is due entirely to our country’s purchases of oil from other countries.

    Eliminating the outrageous use of taxpayer money to keep gas cheap will relieve the federal deficit considerably. Beyond that, taxing gasoline and putting the money towards public transit would be the most progressive tax we could possibly impose as it will benefit the poor and middle class (the most likely transit users) the most. The longer we wait to wean ourselves off oil, the greater pain we will experience economically and environmentally.

  25. A big part of the problem is that in many parts of the country there is no more sensible alternative to driving. Cities and towns are often structured implicitly around cars and are so thoroughly spread out that there’s no reasonable way to move around without them. Increasing public transit alone wouldn’t be a significant enough answer, we’d need to redesign just about everything.

    Rather than a flat national tax it would make more sense to encourage (and let’s face it, taxes are negative reinforcement, positive reinforcement always works better) other areas. We need to develop better inter-city rail to make trains a more viable and desirable alternative to interstates. We likewise need to encourage the greater use of trains for the shipping of freight rather than costly and wasteful trucking which further contributes to the greatest destruction of those roads; trucks make sense for regional and last-mile delivery, not for long-distance hauling between population centers.

    If we must have a tax it makes sense to peg it to population density. In San Francisco or New York it’s reasonable to live without a car and actually rather more problematic to own one. Also due to the shorter distances traveled that same quantity of gasoline will last for more trips than in the suburbs where a tank a week is common.

  26. I talked to many drivers. Most opposed the higher tax. One reason is the addiction to the cars. People get used to cars. Certainly, government adds tax, and people will not like it. That is the reason, politicians don’t care. Whenever, the gasoline price goes up, politicians think about holiday tax break. Tapping more oil in Arctic circle (ok those people don’t care about environment, but how much oil can we tap?). The other issue, there is no alternative. I don’t drive at all. I live in LA. I find out it is very inconvenient to get to anywhere. Of course, the politicians don’t care about people like me. I heard McCain/Sara Palin sympathize the low income people whose income get hammered by high gasoline price. What they fail to see are the people who are not impact by raising gasoline, no-choice bus/rail riders.
    How about intercity rail? it would be mice if City and urban area of big metro have good public transportation. People just envy about bullet train in Europe and japan. Do they even understand that once they get out of stations, they don’t have to drive to the destinations in those countries. Inter City HSR is one side of equation. It is expensive.
    I don’t know why people push when there public transportation in many big cities have grade below F. Don’t tell me about measure R in LA. That measure pretty much ignores the no choice riders. For car drivers who want to leave cars, they find out they get stranded at the train stations.
    Building HSR at Wisconsin and Florida is kind dumb? why can’t the money be used to improve public transportation in Orland, Madison, and other cities.
    Republican dictionary does not contain public transportation
    Democratic and so call liberal environmentalists only have train in dictionary. There is nothing wrong with train except it takes away lots of budget to improve our under perform public transportation.
    When Obama got elected in 2008 and kicked in the stimulus money, my died hard Republican coworker said something that was very touch. She said that the money could be used to improve many infrastructure such as public transportation so [I] no longer have to stranded. She took bus before, and she knew how painful that was. She drives car, and she does not miss the public transportation even HSR and couple rails got built. Because she still has to drive to stations.
    pretty soon gasoline price raised to 10, 20, or 100, and there is nothing people could do.
    Republic idea, keeping tapping oil
    Democratic idea, spending big chunk money to build rail to slow down process
    Thank you both spectrum of politicians and supporters

  27. “Well this is slightly an apples/oranges comparison. Isn’t Fiji among the most expensive bottled waters? Doesn’t it get transported across the Pacific? I think 4/litre for Fiji Water is a bit high. (and you’re a fool to be paying it) ”

    Ummm… GreenCity–a liter is a quart. There’s not a bottled water i know of that’s under $2.

  28. @Mrbadexample: at the local Morton Williams, they sell off-brand bottled water for $0.99 per 1.5 liters, or at least did recently. Fiji is indeed the most expensive brand, or one of the most expensive.

    Not saying gas in the US shouldn’t cost 2.5 times what it costs today, but please pick a better comparison than bottled water. That said, higher gas taxes are a bit like farm aid abolition: very good policy, supported by practically all economists as well as environmentalists and NGOs and even many centrist pundits, but opposed by an overly powerful organized minority.

  29. I live in the Netherlands, would any of you be so kind as to mail me a couple of gallons each month per UPS?
    Plus-side of the high gas price here is that the tax goes into infrastructure, so we have border-to-border bikepaths and excellent highways with a max speed of 120-130 km/h.
    Down-side is it costs an arm and a leg to use them because of the high taxes.

  30. in a sensible world we would simply index the gas tax. Roads and bridges and highways have to be maintained and paid for.

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