The Answer in Two Parts: Part I
The lesson then of 1979 is that you can decrease demand for oil by raising the price SIGNIFICANTLY.
d ~ 1/P
There are lots of ways we could raise the price of oil significantly. We could compel people to buy less fuel efficient cars. We could stop buying oil from the Middle East. We could start a war with Iran. All of these would raise the price of oil but they would also wreck the economy.
It turns out then that the simplest, most economically friendly, and most politically feasible way to raise the cost of energy is to tax it.
In order for such a tax to work it would have to be significant, that is high enough so that it changes behavior.
So if you are going to tax gasoline you would want a tax of about $3/gallon phased in over a relatively short period of time, say two years. You could do this by raising the tax by 75 cents every six months until the tax was $3.
So what would work would be to take gas prices that currently look like this.
Regular $2.92
Extra $3.02
Premium $3.12
In 2 years would look like this.
Regular $5.92
Extra $6.02
Premium $6.12
At this point you are saying, “Now I remember why 1979 was more of a nightmare than a dream. This is going to cost a lot of money. This doesn’t look economically friendly.”
Yes indeed, it will cost a great deal of money.
As a general rule of thumb raising the gasoline tax by a penny a gallon generates $1.50 billion dollars in revenues. A tax of $3/gallon would cost American tax payers $450 billion in new taxes. That is $1500 for ever man, woman, and child in America! This does not look politically feasible.
Well we could have a comprehensive energy policy but at what cost?
How about no cost?
d ~ 1/P
There are lots of ways we could raise the price of oil significantly. We could compel people to buy less fuel efficient cars. We could stop buying oil from the Middle East. We could start a war with Iran. All of these would raise the price of oil but they would also wreck the economy.
It turns out then that the simplest, most economically friendly, and most politically feasible way to raise the cost of energy is to tax it.
In order for such a tax to work it would have to be significant, that is high enough so that it changes behavior.
So if you are going to tax gasoline you would want a tax of about $3/gallon phased in over a relatively short period of time, say two years. You could do this by raising the tax by 75 cents every six months until the tax was $3.
So what would work would be to take gas prices that currently look like this.
Regular $2.92
Extra $3.02
Premium $3.12
In 2 years would look like this.
Regular $5.92
Extra $6.02
Premium $6.12
At this point you are saying, “Now I remember why 1979 was more of a nightmare than a dream. This is going to cost a lot of money. This doesn’t look economically friendly.”
Yes indeed, it will cost a great deal of money.
As a general rule of thumb raising the gasoline tax by a penny a gallon generates $1.50 billion dollars in revenues. A tax of $3/gallon would cost American tax payers $450 billion in new taxes. That is $1500 for ever man, woman, and child in America! This does not look politically feasible.
Well we could have a comprehensive energy policy but at what cost?
How about no cost?
posted by Geoff Berg | 2:44 PM
1 Comments:
Correction: In "In order for such a tax to work you it would" delete "you". Also change "ever" to "every".
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