Sunday, December 20, 2009

Gas Taxes High in the US? Relative to what/who?

A gallon of gasoline in Texas has State and Federal Gasoline Taxes already embedded in the price of gas at the pump.  The State tax is $.20 and the Federal tax is $.184 (read that as "18.4 cents").  The retailer of gas adds a half  cent so we get that funky ".9" for every gallon.  So the total tax burden is $.389 cents per gallon.  The accompanying chart shows the tax rates on gasoline (petrol, as they call it) in Europe.  They price it in Euro cents so let me do an example.  Look at France (it is almost on the 60 Euro Cents line).  There are 3.78 litres in a gallon so at a tax of 60 Euro Cents per litre, the tax in Euros is 2.27.  At todays (12/20/09) exchange rate that would be $3.25!!.  Remember, that is just the tax, not including the price of the gas.  They do not necessarily pay more for the wholesale price of gasoline that US retailers pay, but the retail price you might pay at the pump is going to be MUCH higher than you pay.  This is an example of using taxes as a way to change economic behavior.  The Europeans use this as a way to discourage gasoline consumption, hence as a way to reduce carbon consumption.  I referred to this tax as a Pigovian Tax in a previous post. A tax designed to reduce/eliminate a "negative externality" (a "bad" that is not desirable by society).  Do you think we should levy a large tax on gasoline at the pump in order to change our consumption behavior towards this carbon-based fuel?

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