Thursday, September 29, 2011
With oil prices being volatile on the downside in recent weeks, the mainstream media coverage of high United States gasoline prices has faded noticeably. This is most certain to pick up again should the world shake off a global economic meltdown and once again face the prospect of oil prices in excess of the hundred dollar a barrel mark. As my regular readers well know, as a geoscientist, I am a firm believer in the concept of peak oil (or at the very least peak cheap oil) and it is my belief that consumers in Canada and the United States will eventually be forced to deal with gasoline prices that are far higher than what we are seeing today, excluding the impact of increases in excise taxes.
As we are all aware, a portion of what we pay at the pump is in the form of an excise tax that is collected by the refiner and remitted to more than one level of government. Excise taxes are basically sales taxes levied on specific goods as either a percentage of the value of the good or as a set dollar value per unit of the good as in the case of gasoline taxes (i.e. cents per gallon). In the case of the United States, for the most part, these gasoline excise taxes are used to fund the construction and maintenance of our highways. In this way, the excise tax does create jobs as the nation's highway transportation infrastructure is improved. The current federal gasoline tax legislation in the United States is due to expire on September 30th, 2011 and it will be interesting to see how Washington deals with its renewal.
Collecting excise taxes on gasoline in the United States began nearly a century ago. The first state to enact gasoline excise tax legislation was Oregon in 1919; within just over a decade, every state in the Union had enacted its own state-level excise tax. At that time, state gasoline taxes ranged from 2 to 7 cents per gallon. The first federal government gasoline general revenue tax appeared in 1932, right during the height of the Great Depression, at the rate of 1 cent per gallon and became a permanent excise tax in 1941.
Gasoline taxes were raised from 4 cents per gallon to 9 cents per gallon under the Reagan Administration in 1983. The purpose of the increase was to repair American highways and create jobs in an economy that was in the early phase of a recovery. In 1990, under the Bush I Administration, gasoline taxes were raised by 5.1 to 14.1 cents per gallon, ostensibly to reduce the deficit. Gasoline taxes were last increased in December of 1993 under the Clinton administration. Use of the funds raised by that increase of 4.3 cents per gallon to the current level of 18.4 cents per gallon was once again restricted to deficit reduction.
Economists and politicians know that by increasing the level of the excise tax, consumers could be encouraged to increase their use of more fuel-efficient vehicles and may ultimately use more mass transit. This would result in consumption of less oil and create less air pollution. On the other hand, an increase in gasoline taxes would affect the pocketbooks of Americans who live in rural areas to a greater degree since they generally have to drive greater distances to access goods and services. As well, governments have generally proven themselves to be rather poor stewards of tax revenue and the benefits to society by having the revenue in the hands of government may be outweighed by the benefits of leaving the revenue in the hands of the private consumer... read more
