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Gas Tax: cost internalizing
Posted by: Jon Henke on Friday, February 17, 2006

Want to lessen our dependency on oil? That would be but one of the benefits of a gas tax...
Suppose a politician promised to reveal the details of a simple proposal that would, if adopted, produce hundreds of billions of dollars in savings for American consumers, significant reductions in traffic congestion, major improvements in urban air quality, large reductions in greenhouse gas emissions, and substantially reduced dependence on Middle East oil. The politician also promised that the plan would require no net cash outlays from American families, no additional regulations and no expansion of the bureaucracy.

As economists often remind their students, if something sounds too good to be true, it probably is. So this politician's announcement would almost surely be greeted skeptically. Yet a policy that would deliver precisely the outcomes described could be enacted by Congress tomorrow — namely, a $2-a-gallon tax on gasoline whose proceeds were refunded to American families in reduced payroll taxes.

This, I think, is a tax that libertarians and fiscal conservatives could — and should — get behind. While we might advocate lower taxes in general, the fact is that a tax that reduces externalities is better than a tax that creates them. A gas tax would begin to internalize the prodigious externalities that gasoline consumption produces.

The payroll tax, meanwhile, simply raises the cost of employment without any commensurate internalization of costs. The imposed cost necessarily reduces demand, but employment is not exactly the kind of demand we'd like to see reduced. Gasoline consumption, on the other hand, is.

As author Robert Frank points out, "even the most enthusiastic free-market economists concede, current gasoline prices are far too low, because they fail to reflect the environmental and foreign policy costs associated with gasoline consumption." Plus, price incentives are exactly what will drive us closer to the post-petroleum economy.

Frankly, considering all the myriad problems associated with our dependence on oil — foreign policy, global warming, price volatility, etc— we can't get there soon enough.
 
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Comments
Moving boldly into the 1970’s with THIS one.

John Anderson, my jo. John, when we were first aquent
The tax you sought on gasoline was only fifty cents ...


I note with some interest the debate on better funding Social Security has also been going on since Reagan and Anderson ganged up on Jimmy Carter over the matter.
 
Written By: pouncer
URL: http://
The entire argument for this tax and rebate program (which obviously will add yet more paperwork and record keeping to an already cumbersome tax filing process!) is that artifically raising gasoline prices will decrease consumption, even though at the end of the year the net cost will be the same via the rebate.

I am dubious beyond belief that most people will not see through this. It will certainly have no effect on my behavior. The article also implies that car pooling will increase! There’s a assertion based in fantasyland. The dynamics of car pooling are far more complicated than the price of fuel.

Furthermore, it provides the government with more interest free money between the tax collection and rebate time.

Lastly, Jon, you mention that gas prices do not reflect environmental and foreign policy costs. Fine, that’s an argument I can listen to, but if it is true, why would we rebate the tax to consumers? That’s not exactly covering those costs, is it?

 
Written By: Unknown
URL: http://
Gas taxes especially hurt the poor, which is why back in ’93 Clinton turned his back on Al Gore’s beloved BTU tax idea.

If we want to lessen our dependence on oil we need to (a)build more nuclear plants so that we may (b)drive cars that don’t burn oil. I am especially intrigued by this car which runs on compressed air. Something like this has the advantages of clean transportation without the infrastructure worries associated with hydrogen or all-electric cars; all a station needs is a really good air compressor.

And it means fewer dollars going to the federal, state, and local governments. After all, what are they going to do? Tax the air? (Yeah, yeah, I know: they’ll just raise the tax on electricity.)

 
Written By: ondigo
URL: http://
I have a better grasp of this now. Essentially the thought process is this:

Hey, we’re going to charge you a huge fee to buy gas today, money which you will get back in 1-11 months, but in the meantime, since you would rather have that fee money for something else, you’ll buy less gas to avoid paying the fee.
I concede that this will have an effect, but given my other complaints above (tax filing costs, interest-free loan to government, failure to apply tax to actual externality costs) in addition to the point that this idea is antithetical to free markets and free people, what the h*ll are you thinking?

I can get behind a tax that pays for real, proven, documentable externalities that is then applied to these, but beyond that, stop smoking your crack.

 
Written By: Unknown
URL: http://
I can’t comment on the 70’s gas crisis as I was in Junior High (or so) but I can agree with our unknown commenter that car pooling is all but unrealistic unless you are commuting to a large metropolis (and intend to use transit from there) and you work the proto-typical 9-5.
I work for a firm with 15 employees and drive an hour each direction, although I do get to work at home twice a week, and I bought a diesel for the fuel economies, but I could not expect to find anyone near my employer who lives out in God’s Country where I raise my family to carpool with. Unrealistic!

An air car? Nifty, but practical? Maybe. Oh, and as for zero emissions... What about the enormous emission required to (indirectly) power the "good air compressor"? We’re not talking about a Craftsman like you might have in your home...

But my initial comment was more about European gas (petrol ?) pricing. Don’t they have a similarly high tax placed on their fuel, going towards health care or some-such? How has that experiment panned out? We should use the resources available to us (pun intended) to learn what works and what doesn’t.

PS - Can you adjust the fontsize on your main site to default to normal? I have always jammed my screen resolution down as far as I could and I set me browser type size to small (all for more content, etc) but when I click into your site and the words are microscopic. Thanks.
 
Written By: Tom_with_a_Dream
URL: http://http://dreaming_big_dreams.blogs.com
Sheer nuttiness. No wonder this bright idea comes to us from the New York Times.
 
Written By: clark smith
URL: http://
If such a fee became the law, as a credit card company I would consider factoring my customer’s future rebate against all gasoline purchases made on my credit cards. Every month I would rebate them 90% (or whatever makes me a profit) of their gas fee in exchange for their future payroll tax rebate. Effect of fee on consumption decreases and the higher the fee, the more incentive there is for the credit companies and consumers to do this. Of course Congress can always pass a law making this illegal and would we really expect less of an entity so smug and full of itself?
 
Written By: Unknown
URL: http://
I think this is generally a great blog - I read it all the time - but this post seems to prove that even libertarians can’t resist the urge to turn the dials and exercise control over other people’s lives, for their own good.
 
Written By: Unknown
URL: http://
On the "rebate," just from looking at the quote Jon posted, I think the idea is not to require a tax return in order to "refund" the difference, but to lower the current payroll tax rate so less is withheld from paychecks each month. No extra paperwork required.
 
Written By: Ugh
URL: http://
Ugh, how do you insure that the rebate matches the amount of gas tax paid per consumer? As I read it, the idea isn’t to take all the gas tax and divide it by the # of payroll tax payers, but to rebate proportionately to use. If your take is correct, below average gasoline users get a rebate higher than their consumption and vica versa. I suppose that’s a scheme some might fall in love with.
 
Written By: Unknown
URL: http://
how do you insure that the rebate matches the amount of gas tax paid per consumer?

That’s the whole point, you don’t. The idea is (again I haven’t read the underlying piece, so I could be wrong) to reduce gas consumption and increase incentives to work. You do that by raising gas taxes and lowering payroll taxes, with the (estimated) aggregate amount of revenue raised by the increased gas tax offset by a decrease in the payroll tax rate, so there is no net change in federal revenue.
 
Written By: Ugh
URL: http://
I could be wrong, but the benefit proposed here seems illogical. The premise is that if we enact a 2$/gallon tax one of two things will happen:

1) People buy much less gas, the benefits being: "billions of dollars in savings for American consumers, significant reductions in traffic congestion, major improvements in urban air quality, large reductions in greenhouse gas emissions, and substantially reduced dependence on Middle East oil"
OR
2) People still buy the gas, the 2$/gallon tax goes to fund Social Security: "proceeds were refunded to American families in reduced payroll taxes"

Note the OR. Either consumers buy the gas and pay the tax, OR they don’t buy the gas and don’t pay the tax. I don’t quite follow how this is being sold as "people will buy less gas, AND we’ll get more tax money!" Maybe they’re figuring corporations will support this tax, and thats where the revenue will come from? If so, it still gets shunted back to the consumer’s shoulders.

Can anyone explain this to me?
 
Written By: intelrupt
URL: http://
I have long been in favor of this, another tax which might go along with a fuel tax would be a tax on the weight of vehicles. In this way you avoid the stupid top-down fiat of Cafe standards, which didn’t work anyway.
If dumbass soccor mom just has to have her metal behemoth SUV, then let her pay extra. I have been run off the road several times in my sensible little car by these cell phone using harridans.
 
Written By: kyle N
URL: http://impudent.blognation.us/blog
In reply to some of the previous posts. I certainly would not want to rebate anything, that defeats the purpose, but you might LOWER other taxes in compensation. People have more money in their pockets, but the fuel is much more expensive, so they find other things to do with their money.
 
Written By: kyle N
URL: http://impudent.blognation.us/blog
Ugh, read the underlying piece. I don’t think it suggests or implies what you are saying. If it does, the tax is even worse because it penalizes higher gas users and that will raise the cost of many goods, further obscuring real costs from taxation costs.

Furthermore, if it is a proportional tax/rebate as I read it, how do they figure to account for rebating all the businesses that buy gas? Some businesses I imagine would spend more on this gas tax than they have in payroll tax expense.


 
Written By: Unknown
URL: http://
Huh, as written it does look like a per family rebate, though as the piece points out it would still reduce gas consumption. Keeping track of how much gas was purchased would therefore be a problem, and the article sould have mentioned it as an extra-cost (he is also ignoring the potential for fraud, "Hey, I bought $20,000 worth of gas this year, where’s my rebate?").
 
Written By: Ugh
URL: http://
EconoPundit had a slightly different idea:
Here’s the EconoPundit national energy policy.

1. Impose an immediate and permanent oil import tax set on a sliding scale between $95/bbl and current world price. If world price is $70, the tax is $25/bbl. If world price sinks to $35, the tax automatically rises to $60/bbl.

This tax is permanent. Energy costs as seen by households and businesses will initially rise substantially but will quickly stabilize and won’t fluctuate even one tiny bit from year to year. What now goes "up and down" is import tax revenue, not domestic energy costs. It is possible there are massive cost reductions in many if not all areas of production to be realized if energy costs are permanently and credibly stabilized.

2. Spend some of the new massive revenue on whatever redistribution is necessary to ease the transition to the new economy. Spend some of it on alternative energy and conservation. Spend some of it on lowering other taxes here and there. Heck, I don’t care.

3. Spend the rest on speeding the development of domestic recoverable oil shale. James Perry, who provided this link, describes the situation as follows:

The largest known oil shale deposits in the world are in the Green River Formation, which covers portions of Colorado, Utah, and Wyoming. Estimates of the oil resource in place within the Green River Formation range from 1.5 to 1.8 trillion barrels. Not all resources in place are recoverable. For potentially recoverable oil shale resources, we roughly derive an upper bound of 1.1 trillion barrels of oil and a lower bound of about 500 billion barrels. For policy planning purposes, it is enough to know that any amount in this range is very high. For example, the midpoint in our estimate range, 800 billion barrels, is more than triple the proven oil reserves of Saudi Arabia.

At current rates of consumption these deposits would keep a U.S. petroleum-based economy going for another 100 years with no oil imports.
While we’re at it, some of that money could go into researching TDP/TCP (thermodepolymerization). If we processed just our agricultural waste with TDP, we’d be outproducing all our imports of oil.

Between that and Canadian tar sands, we’d have quite a bit of padding in our oil situation.

Of course, once we set a price floor, we’d be encouraging oil producers to produce at that exact equilibrium price... though they’d have to burn off a LOT of oil to get it up there.
 
Written By: OrneryWP
URL: http://
Forgive me: I didn’t mean "researching" TDP. The science is already done. I mean developing TDP.
 
Written By: OrneryWP
URL: http://
Excuse me, but why shouldn’t we burn everybody else’s oil before burning our own?
 
Written By: Mark A. Flacy
URL: http://
What about us evil, greedy people who have a 125 mi. per day commute?
The wife has a 70 mi. commute in the other direction.

For those with a quick answer- NO, we can’t "just get jobs closer to home" that pay what ours do.
 
Written By: KurtP
URL: http://atrainwreckinmaxwell.blogspot.com/
KurtP,

Surely you can find many people to carpool with who have your exact schedule and lifestyle? No? Well then take one for the team - comrade - and do what’s best for the greater good and change your life all around to fit into an inflexible carpool schedule. Ingrate!


Of course I’m being facetious.



 
Written By: Unknown
URL: http://
i’m having a hell of a hard time buying this proposal, frankly.
 
Written By: zra
URL: http://zra.livejournal.com
It’s too late to comment at any length, so I’ll save that for tomorrow. In the meantime, I’d ask you guys to note a few things:

1) I’ve not proposed any aditional taxes — only that existing taxes be levied in different ways.

2) Do you dislike the gas tax in this equation? Then why are you so enamored with the payroll taxes? If you’re to be taxed X dollars, why would it be better in a payroll tax?

3) There’s no "rebate" involved here. You’ve misread the piece. The "representative family" would save about 4k in payroll taxes with the kind of deduction that a "representative family" would be likely to get.

4) I’m sure you all personally like being able to externalize the costs you incur when you use gasoline. Hell, if I could get somebody else to pay my mortgage, I’d probably find that hard to turn down, too. But that’s not a terribly libertarian thing to do. Why are you opposed to internalizing the costs of gas usage?

5) As regards carpooling...I’m sure the behavioural change would be fairly mild in the very short term. There is a very inelastic short term demand for gas. Price changes don’t produce much immediate behavioural change. It does, however, produce longer term changes. Aside from the obvious changes like buying more fuel efficient cars, limiting trips, car-pooling when possible, using public transportation, etc, it would also immediately incentivize massive amounts of research into alternative energy sources.
 
Written By: Jon Henke
URL: http://www.QandO.net
Jon,

Nope. Not a question of payroll taxes being better. It’s a problem of using a tax as an attempt to change social behavior with no clear plan to deal with the effects of actually pulling it off.

Say you enact this tax in a revenue neutral manner. Say the actual number works out at $2 a gallon. With the US average use of ~9Mbpd of gasoline (2004), you’re looking at an income of $275B a year. (We’ll just skip disiel, kerosene etc for now). Now reduce income taxes by that amount.

Say you accomplish you goal and reduce gasoline usage by 50%. Do you really thing a government that tried this level of tax based social engineering is just going to kiss off ~140B a year in income? Do you double the gas tax and reduce consumption further? Raise the income tax?

I’m not against making the truse cost of gasoline usage known, but trying to reduce usage by taxing it more seems like a great way to raise taxes all around.
 
Written By: Ryan
URL: http://
1. How very libertarian of you.
2. Of course I dislike the gas tax; why do you assume anyone is enamored of the payroll tax either? Even liberals dislike it.
3. The article is poorly written and the examples are unclear. If the proposed tax is indeed a transfer from high gas consumers to low gas consumers, that doesn’t make it any better. It’s still government meddling needlessly in the market. And no one seems to have any details regarding how this will effect commerce and business.
4. I, personally, suggested support for a tax that actually pays for documented, proven externalities. This tax is nothing of the sort.
5. Prove it. HOV/carpool lanes were touted as methods to encourage/force car pooling in cities and I’ve yet to see a city where it works well. It’s all utopian wishful thinking.

 
Written By: Unknown
URL: http://
Oh goodness... what a wonderful shiny future you paint! :D

Except... if you live in New York City, you don’t buy gas. You ride the subways. No WONDER this article is printed in the New York Times.

So the idea is to pay a gas tax, and in balance we would NOT pay payroll taxes. (to a nationwide balanced effect)

I work for a company which shuttles folks to and from the airport. We use roughly 2000 gallons of fuel every 24 hours. Last year on roughly $12mil gross income we profited less than $200,000. Yeah, we know, the owner doesn’t think we’re profitable enough either, nor do the banks who offer us a credit line - it’s been a tough couple of years out here in the transportation industry. Be that as it may, if you slap on a $2/gallon tax?

2000 gallons x $2/gallon = $4000/day x 365days = $1,460,000 in increased operating costs every year. Assuming we cannot increase our business, a task I am personally assigned to make sure happens.

Individuals with jobs and no car will come out WAY ahead in this scheme... but any small business that has the use of a vehicle as part of their business would CLOSE the day the legislation passed. Can you imagine the modern business world without FedEx or UPS? How about never getting ANYTHING delivered by a local company?

And if you decide to make an exemption for businesses? I can virtually guarantee that the measured average fuel economy of every business’ vehicle will be cut in half overnight, while some personal vehicles will average over 100 miles to every gallon of gasoline they buy. Hey, we’ve solved the CAFE standards problem!

Verdict: It would be nice if the world worked in reality the way it does in poorly thought out fantasies like those you cite. But it doesn’t.

Mr. Michael
 
Written By: Mr. Michael
URL: http://none
Econopundit....his plan is DA BOMB.

 
Written By: Harun
URL: http://
Nope. Not a question of payroll taxes being better. It’s a problem of using a tax as an attempt to change social behavior with no clear plan to deal with the effects of actually pulling it off.
There’s no social engineering in this. Fact is, gas prices don’t reflect gas costs. There are a lot of externalities that people outside the transaction end up paying. A gas tax would force consumption to reflect the actual costs.
Say you accomplish you goal and reduce gasoline usage by 50%. Do you really thing a government that tried this level of tax based social engineering is just going to kiss off ~140B a year in income? Do you double the gas tax and reduce consumption further? Raise the income tax?
That’s an excellent point, and it would need to be addressed in any such gas tax plan. Not, however, in this brief blog post.
2. Of course I dislike the gas tax; why do you assume anyone is enamored of the payroll tax either?
You’d prefer it to a gas tax, despite the deadweight costs of a payroll tax.
5. Prove it. HOV/carpool lanes were touted as methods to encourage/force car pooling in cities and I’ve yet to see a city where it works well. It’s all utopian wishful thinking.
To which part of #5 do you object? The fact that demand declines as price rises is a quite well-settled law of economics. The fact that demand for gas is fairly inelastic in the short term is fairly obvious. Surely you didn’t think I was suggested that a gas tax would result in mass, nationwide carpooling?

In any event, the next commenter makes the point for me.
Except... if you live in New York City, you don’t buy gas. You ride the subways.
Exactly. When the price rises, you get substitution effects.
Individuals with jobs and no car will come out WAY ahead in this scheme... but any small business that has the use of a vehicle as part of their business would CLOSE the day the legislation passed.
Some inefficient small businesses would close. Others would simply do what they do when any commodity cost rises — they would substitute or pass the cost along to consumers.
 
Written By: Jon Henke
URL: http://www.QandO.net
Other than a total change in American society.
Interesting idea.
So, technically, is communisim in pure form.

Now, try to make it work.
How many years do try it out with a reeling economy and social upheaveal before the ’fixes’ that can be expected from the market stabilize society again?

And if you want to talk about the benefits of being less dependent on foreign oil, etc, fine. But don’t trot out the global warming thing as a valid reason ("every little bit helps" I suppose is a valid argument).
 
Written By: looker
URL: http://
Suppose a politician promised to reveal the details of a simple proposal that would, if adopted, produce hundreds of billions of dollars in savings for American consumers...

They must be talking about the money saved by not driving, because the cost of goods will go UP. Are they trying to kill the trucking and distribution companies? Not all of them pass along fuel charges you know. And even if the do, whoever absorbs this cost still has to make a profit, or should they break even, and take one for the team as Unknown put. I fuel planes for UPS here in Louisville and we push through over 700,000 gallons a day just for the planes, and we are in a slow period right now. And we haven’t even started talking about the package cars or trailers yet.

The idea is to reduce gas consumption and increase incentives to work

So what are ya saying, we are lowering your payroll taxes as an incentive, but it going to cost you more to get there. That kinda negates the incentive doesn’t it.

Jon, for what takes me an hour and a half to get to where I want to go by bus, it takes 20 minutes by car. Some substitute. Oh yea, our bus line doesn’t even go near where I work. We all don’t live in NYC.
 
Written By: Wilky
URL: http://
I’ve had it with JH.
Henceforth I will not waste my time reading his posts.
 
Written By: Greybeard
URL: http://www.pitchpull.blogspot.com/
Continued thoughts on why it’s not workable in the time frame you’d need it to work to make it successful.

Many families are currently in a position where they cannot cut back on their gas useage (let’s assume their example family at $4000 a year) and don’t have an additional $4000 they can afford to put into the tax poker game to wait for the hand to end sometime in the coming months. Distribute the bill evenly across the 12 months if it will help, but if they don’t have the $4000 they don’t have it, and they’re going to HAVE to cut back on something else.
Let me guess that many of them will choose "savings" first. That’s a ’tomorrow’ value, and they’re going to be worried about ’today’. That will work out good later when Social Security is struggling to stay afloat.
Those who don’t have savings might quit buying the extra six pack, the latte at Star Bucks, drop one of their Direct TV connections, stop going to the movies and dinner. Still, $4000.00 is going to take some work to offset as a loss (even a temporary one until April 15th of coming year) for most families.

Some companies on the other hand just ARE going to benefit, no doubt.
However, the infrastructure (which I admit I’m not in love with) is currently designed on the premise that automobile fuel is not a commodity in short supply.
And after watching the efforts to install light rail locally, I’d say you’d have to wait 5 years for a decent light rail system that is useful (if a bit inconvenient) to people who can no longer afford to drive. THAT will require higher taxes locally as they float bonds to build it. More money out of your pocket. Then again, most people who can’t afford to drive are shortly going to be unemployed, so the required driving will continue and other elements of their lives will suffer, and they still may not use the light rail they’re
paying for (and certainly not while it’s being built).

Really, the more I look at it....You want it to work? declare a full scale war
(I’d say fight France, but that would end too quickly. Pick someone like the British for this. A good long war.), convince Americans that rationing and higher prices are needed to help secure victory, get them used to shortages, growing their own things, changing jobs to help the war effort, and by the time the war is over, you can cut your fuel use and have it worked down into the economic and societal fabric.

We won’t be the same country, but that sword could cut either way.
 
Written By: looker
URL: http://
I find it amazing that libertarians can say they support user fees, but would be so adamantly opposed to Jon’s proposal, which is much closer to a user fee system than is the current system.
[shrug]

Crazy libertarians commenters.
 
Written By: Wulf
URL: http://www.atlasblogged.com
Wulf, if your talking about liability insurance at the pump as a user fee I’m with you, this is more like social engineering, to "drive us closer to the post-petroleum economy". No thanks, I’d prefer it evolve in its own time.
 
Written By: Wilky
URL: http://
The theory just doesn’t fly. Just because some product doesn’t keep in step with inflation thats a bad thing? Giving me something back that you took from me is just replacement. So instead of just penalizing the employee (payrole tax). Now your going to shift that penalty to the producer, the wholesaler the retailer and the consumer (employee). What pray tell happens to those businesses. Will they increase salary? Will they raise prices to cover increased production and distribution cost? Will they sell less product because fewer consumer can afford to get to their store? What happens then? Just a few inefficient business go out of business. So now less people are working. Oh but they’ll just get hired by the company’s that have no dependendence on oil or gas, riight. How about we tax coca-cola by 6.00$ per ounce and eliminate income tax. A tax is a tax is a tax NO matter how emotional the appeal.
 
Written By: Coaster
URL: http://
So, technically, is communisim in pure form.
Why would a gas tax be "communism" any more than an employment (payroll) tax?
And if you want to talk about the benefits of being less dependent on foreign oil, etc, fine. But don’t trot out the global warming thing as a valid reason ("every little bit helps" I suppose is a valid argument).
Reaching the post-petroleum economy would certainly help with environmental issues. It may or may not be a wholly sufficient solution — I don’t know — but it would certainly be a significant step.
They must be talking about the money saved by not driving, because the cost of goods will go UP.
See, this is a very, very odd argument. You assume that a company that uses oil would be forced to pass along the additional costs to consumers. Fine. That’s correct.

Meanwhile, what about the companies — every single one in the country — that will see their payroll taxes reduced? Do you think that might have an effect on consumer prices? The difference — one, at least — is that a gas tax would produce positive externalities. Payroll taxes are a deadweight cost. They produce negative externalities.
So what are ya saying, we are lowering your payroll taxes as an incentive, but it going to cost you more to get there. That kinda negates the incentive doesn’t it.
Payroll taxes reduce the incentive to hire by adding to the cost of employment. Meanwhile, we’re consuming more gas than we would if the price reflected the true cost of gas because we’re essentially having it subsidized for us.
I’ve had it with JH. Henceforth I will not waste my time reading his posts.
Whatever gets you through the night. Seems like a strange reaction to the suggestion that a gas tax would be more economically inefficient than a payroll tax. I didn’t realize people were so emotionally attached to their payroll taxes.
Many families are currently in a position where they cannot cut back on their gas useage (let’s assume their example family at $4000 a year) and don’t have an additional $4000 they can afford to put into the tax poker game to wait for the hand to end sometime in the coming months. Distribute the bill evenly across the 12 months if it will help, but if they don’t have the $4000 they don’t have it, and they’re going to HAVE to cut back on something else.
You seem to still be under the impression that the author is suggesting a one-time "rebate". You’re incorrect. The suggestion is for a reduction in the payroll taxes. In that case, working people would see a regular increase in the size of their check. Your objection, therefore, is moot.
Just because some product doesn’t keep in step with inflation thats a bad thing?
Nobody said anything about inflation.
A tax is a tax is a tax NO matter how emotional the appeal.
Yes, but some taxes are better — e.g., more efficient — than others. If you dislike taxation in general, fine, but that’s not the matter under discussion.
 
Written By: Jon Henke
URL: http://www.QandO.net
A tax on transportation fuels is going to make goods produced in the US a lot more expensive. This will have a deleterious effect on the competiveness of US goods in international markets and probably in domestic markets as well. Coastal or border regions may be able procure goods at a lower cost from regions abroad with low gas prices than from other regions of the country due to high gas prices increasing transportation costs in the US.

And this notion of reducing the payroll tax to compensate for the increased fuel prices will probably end up being a subsidy to people living in urban environments with short commutes.

Given that the largest urban regions are on or close to the coasts, this is going to be a double whammy for the inland regions.

 
Written By: ATM
URL: http://
Meanwhile, what about the companies — every single one in the country — that will see their payroll taxes reduced? Do you think that might have an effect on consumer prices?

My experience says, not much. But what ever is being shipped will be hit with this tax each and every step of the way, from the time the raw materials are gathered till the final product gets to the shelves. Look Jon, the creative and the entrepreneurial are the ’brains’ of this economy but the trucking and shipping companies are the ’backbone’ of it. Why do you want to break the backbone of an economy?

Payroll taxes reduce the incentive to hire by adding to the cost of employment.

You know, I’ve never heard a good businessman, after looking at the orders coming in that he can’t fill say, "I’d hire another employee, but I just don’t want to pay those payroll taxes", have you? Didn’t think so.

Meanwhile, we’re consuming more gas than we would if the price reflected the true cost of gas because we’re essentially having it subsidized for us.

If you are so concerned about our military protecting shipping lanes, fine. Lets submit a tax bill to the UN to cover it or better yet let the country of origin pay for it. Our protecting those shipping lane benifits the entire world, not just the US.

I’d rather not continue the shell game known as social security. Gas taxes to cover payroll taxes, why don’t we just stick a knife in under the ribs of the little guy and twist. Remember, I work for a union and this is exactly how my union "brothers" will look at this. I can hear them now, "look how they are shifting those taxes from the company to us little guys. Those rich guys get all the breaks while the average Joe take all the hits".
 
Written By: Wilky
URL: http://
A tax on transportation fuels is going to make goods produced in the US a lot more expensive.
Why? Why would a tax on gas make goods more expensive than an equivalent tax on employment?
And this notion of reducing the payroll tax to compensate for the increased fuel prices will probably end up being a subsidy to people living in urban environments with short commutes.
A subsidy for non-consumption?!?!? Is that kind of like how we subsidize childless people by not making them pay for diapers?
You know, I’ve never heard a good businessman, after looking at the orders coming in that he can’t fill say, "I’d hire another employee, but I just don’t want to pay those payroll taxes", have you? Didn’t think so.
And I’ve never heard a person say "I’d work more, but the 39% tax rate is just too much for me". Nevertheless, additional costs do change incentives. Unless you’ve found the to-date mythical demand curve that doesn’t go down and to the right, then additional costs do affect employment decisions.
 
Written By: Jon Henke
URL: http://www.QandO.net
I have several objections to this proposal:

1. It is unusual for the government (at any level) to reliquish tax revenue. Therefore, I would expect the government to raise the gas tax but somehow never quite get round to reducing the payroll tax.

2. If the government did, there would be considerable pressure from the left to turn the reduction in the payroll tax into a wealth-redistribution scheme in which "the poor" would get more money "back" than "the rich" (recall the frenzy a few years ago when there was pressure to give tax rebates to low-income people who didn’t pay taxes in the first place).

3. How would the payroll-tax rebate be calculated? While we can safely assume that the average automobile mileage is about 12,000 / year, the range must be huge. It seems to me that a system that could equitably deal with variations in mileage would have to be fatally sophiticated.

4. If the rebates are done in the form of payroll tax reductions, what guarantees are there that the employer will pass these savings on to the employees in the form of larger paychecks, or to his customers in the form of lower prices?

5. How will independent truckers be compensated?

6. Shouldn’t the weight of vehicles be accounted for, as heavier vehicles do more damage to roads and (presumably) use more fuel and emit more pollution?

7. Using high tax rates to force people to adjust their behavior seems anti-democratic, if not outright authoritarian. It also leads to the black market (witness cigarettes and liquor).

8. I have no confidence that any level of government would use the extra tax money to fund environmental cleanup, road maintenance, energy development, or any of the other intended uses. Rather, it would be burned up by "pork". We’ve had a lot of experience with this in NC with tobacco lawsuit money: it just disappeared.

Bad idea. Bad, bad, bad.
 
Written By: docjim505
URL: http://
IT’S NOT A REBATE!!!

How many times do I have to write that? The proposal is a blanket deduction in the percentage rate paid in payroll taxes, not a proportional ’rebate’.
Therefore, I would expect the government to raise the gas tax but somehow never quite get round to reducing the payroll tax.
As proposed, the two measures are simultaneous. The author does not propose we institute a tax and then — later on, whenever — get around to a payroll tax deduction.
5. How will independent truckers be compensated?
In precisely the same way they are currently compensated for their gas purchases; in precisely the same way that small businesses are compensated for payroll tax costs.
6. Shouldn’t the weight of vehicles be accounted for, as heavier vehicles do more damage to roads and (presumably) use more fuel and emit more pollution?
If heavier vehicles use more fuel, then they will pay more. By purchasing more fuel.
7. Using high tax rates to force people to adjust their behavior seems anti-democratic, if not outright authoritarian. It also leads to the black market (witness cigarettes and liquor).
As opposed to using high tax rates when you don’t want people to reduce a certain behaviour? (e.g., hiring) Look, even leaving aside the arguments about externalities, the fact is that this revenue is going to be raised. Would it be better to do it in a way that incentivizes behaviour that benefits us and internalizes what are currently negative externalities? Or would it be better to do it in a way that reduces employment? Your call.
 
Written By: Jon Henke
URL: http://www.QandO.net
Jon,

You wrote:
As proposed, the two measures are simultaneous. The author does not propose we institute a tax and then — later on, whenever — get around to a payroll tax deduction.
But that’s my point: I don’t trust the government to do this. Take the case of the AMT: Congress had time to investigate steroids in baseball, but they didn’t have the time to repeal an unfair tax.

This sort of tax may be a good idea (I’m no economist, so I can’t make an informed judgement), but I regard suggesting ANY sort of new tax idea to our government officials as akin to introducing a young boy to Michael Jackson: no good can come of it!
... the fact is that this revenue is going to be raised. Would it be better to do it in a way that incentivizes behaviour that benefits us and internalizes what are currently negative externalities?
I think the underlying assumption - that the gov is going to get our money one way or another - is to some extent false. It’s not that I have any belief that Raleigh’s and Washington’s insatiable appetites for tax revenue are going to go away; rather, I wish that more people would start realizing that John Q. Public controls the purse strings and, instead of thinking of the least painful way to screw tax us, they’d think about the best way to cut government down to a proper size.
As opposed to using high tax rates when you don’t want people to reduce a certain behaviour? (e.g., hiring)
Unfortunately, the government has been "disincentivizing" hiring for decades through payroll taxes and unfunded mandates such as minimum wage, EEO, unemployment insurance, etc. They get away with it because the mandates have a benevolent purpose (as I can attest, having collected unemployment insurance for a time a few years ago). The high gas tax falls into the same category: it is intended to produce a positive outcome... but it’s still a tax and therefore a burden on the people.

I suppose that there are better ways for the government to collect revenue than what they currently do. Perhaps this is one. However, I just can’t get past my suspicion that this proposal would place an unfair burden on the American people and give the politicians and bureaucrats another method to raid our wallets.
 
Written By: docjim505
URL: http://
But that’s my point: I don’t trust the government to do this.
I think you’re making this more difficult than it needs to be. I’d support a bill that would replace payroll tax with an equivalent gas tax.
I think the underlying assumption - that the gov is going to get our money one way or another - is to some extent false. ... I wish that more people would start realizing that John Q. Public controls the purse strings and ... they’d think about the best way to cut government down to a proper size.
This is a remarkably naive view. I wish the public would think about cutting the size of government, too. But I wish a lot of things that aren’t likely. Fact is, "John Q Public" likes the major government programs that constitute the majority of the government we’d like to see cut. And if the public wants it, they will get it. The only question is how they’ll get it and how it will be paid for.
 
Written By: Jon Henke
URL: http://www.QandO.net
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Written By: OOOYY
URL: http://

 
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