NCPA - National Center for Policy Analysis

MORE BAD TAX IDEAS

June 1, 2004

A big increase in the gasoline tax in order to discourage oil consumption and make the nation less vulnerable to the OPEC oil cartel is a ludicrous idea, says Bruce Bartlett.

All European countries have far higher gasoline taxes and they are just as vulnerable to increases in the price of oil as we are. If a higher oil price translates into a 50-cent per gallon increase in gasoline prices (net of tax), then the Europeans and we are both going to pay 50 cents more per gallon.

The reason is that oil is an internationally traded commodity, explains Bartlett:

  • Whether you are importing oil or exporting it, you are going to pay the world price one way or another when you use oil.
  • If you are an oil exporter, you can hold the price of gasoline down for your citizens, but then the nation as a whole pays an opportunity cost equal the foregone profit.
  • In the end, it is no different than an oil importing country using public funds to subsidize the price of gasoline.

The point is that from the point of view of a consumer, it makes no difference whether you live in a country that is self-sufficient in terms of oil or one that is not. When fundamental market forces cause the price of oil to rise, everyone pays. There is no way of insulating yourself except by shifting the cost to someone else, says Bartlett.

Source: Bruce Bartlett, "More Bad Tax Ideas," National Center for Policy Analysis, May 31, 2004.

 

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