The musings of one Andrew Langer - defender of liberty, passionate protector of individual rights, foodie. (Note: Said Musings of Andrew Langer are his own, and the views represented herein are likewise his views, and not the views of any other people, entities, foodstuffs, etc [unless otherwise specifically and explicitly noted].)

Wednesday, August 31, 2005

There's Already A Way For The Government to Lower Gas Prices...

So I've already admitted that I've got a lead foot. And when it comes to my own driving habits, there are two other things I obsess about: mileage and gas pices. It's a holdover from my parents, who themselves obsessively keep notebooks in their cars marking dates of fill-ups, amounts, and mileage between fill-ups. I expanded on this when I inherited family cars to include gas prices (an obsession I, in turn, inherited from my grandfather). Actually, checking how your car is doing miles-per-gallon wise is a good proxy for diagnosing how your car is doing (just a tip).

Anyhow, if you're like me, you're concerned about government stupidity in the face of rapidly rising gas prices. Yes, I'm frustrated too at the price at the pump (I got angry when gas prices jumped above a buck when I lived in Florida back in the late 90s). I also know the potential impact economy-wide of increased gas prices.

But I also know that when government starts to get the idea that it ought to be medding in the price of goods (especially the price consumers pay), really, really bad things ensue. And with Katrina having shut down refineries in the Gulf, cutting our already threatened domestic supply of gas, we're looking at another gas price spike (I know, Andrew - tell us something we DON'T know!). In fact - I'm sitting here watching Fox Morning News, and they are reporting that gas prices in the DC-area might jump THIRTY CENTS today, in light of the hurricaine!

Some states are looking at placing price caps on gas - either at the consumer or at the wholesale level. The President is looking at releasing supplies of oil from the federal government's emergency oil reserves.

If I had to choose just between those two, I obviously would choose the latter. The answer to lowering prices in the face of steady consumer demand is to increase supply (thank you, Professor Schifrin - I really was paying attention in Econ. 101!). Price controls simply don't work - they have all sorts of unintended consequences (not the least of which being that sellers nearly always make sure that their price is set at the maximum, regardless of what the market might actually be demanding).

But I had another thought recently, when we started to see the first spikes in gas prices earlier in the Summer. Government already has a way to lower gas prices without setting price controls: repeal the taxes on gasoline.

Thankfully,federal gas taxes aren't proportional to the price paid at the pump. This was the horrific scenario that I'd envisioned when I started to contemplate this (think about the windfall to government in light of higher prices - like it is to Virginia from surcharge taxes in Northern Virginia - a 2% tax). But according to Gas Price Watch (http://www.gaspricewatch.com), a website where you can check where the lowest gas prices are in your area, the federal portion of the price at the pump is 18.4 cents per gallon - a not insubstantial sum. On a 15 gallon fill-up, that accounts for $2.76 of the total cost.

As I said - I obsess about gas prices. I'm willing to drive an extra few miles for a saving of three cents per gallon. But I'd be willing to go seriously out of my way in order to save nearly $300 per year.

The problem is compounded when you consider the state portion of this burden. In Maryland, where I live, the state portion of this burden is a whopping 23.5 cents per gallon! So, when I filled up at the Wa-Wa on the approach to the Bay Bridge yesterday, I paid $2.63 per gallon (normally, I would have tried waiting until I got closer to home, which has tended to be cheaper, but my car simply wouldn't allow it). The government's total portion was 41.9 cents, thus amounting to $6.29 of what I paid yesterday.

Consider the annual impact economy wide - for me alone, if I'm filling up twice a week, this is nearly $630 annually - if my business depends on making sure that my vehicles are filled with gas, this is hugely important. Let's say a Maryland business has 4 delivery vans which have a 30 gallon capacity and require refueling three times a week. A ten cent fluctuation in gas prices means a change in expense for the business of roughly $1,900 annually. Were Maryland and the Federal government to suspend or repeal their gas taxes, this business would save... $7,843.68.

Similar savings could be had throughout the DC area. The district imposes a 20 cent tax per gallon - total taxes, 38.4 cents. A business in DC with the exact same gas expenses as the one above would save roughly $7,200. In Northern Virginia, whose 2% additional tax per gallon means that the revenues to the state rise when gas prices go up (and I'm galled at this, frankly), it's similarly dramatic.

If gas prices are $2.65 per gallon, the Northern Virginia surcharge is just about 5 cents. So, let's look at Virginia's portion of the price at the pump: 17.5 cents, plus 2.5 cents: 20 cents (not including the .6 cent surcharge for storage tank fees). At roughly 20 cents, Northern Virginia business savings would be roughly commensurate with the District savings.

So, it's fairly clear to me - if politicians want to really have an impact here and do something dramatic to salve the sting of rapidly rising gas prices, they've got the tools right in their hands. They can do something without causing further hurt to businesses - and allow me to digress for a moment: it would not only be poor public policy to single out specific industries to bear the burden of gas price alleviation, it would be grossly unjust to do it while federal and state governments continue to receive their full share. Think about it: how truly perverse for the government to control the potential revenues received by a business while doing nothing to sacrifice its own coffers!

Cut gas taxes now. The answer is simple.