NCPA - National Center for Policy Analysis

Case For Higher Gas Taxes

October 19, 2000

Economist Hal R. Varian proposes phasing in increased taxes on gasoline in the U.S., and giving the revenue back to taxpayers in the form of an income tax credit. Not only would this discourage consumption and reduce pollution (without imposing a net tax increase on consumers), but according to Varian it would transfer some oil profits from producing countries to consuming ones.

  • Varian points to research by economist Theodore Bergstrom, who compared the actual petroleum tax policies of various countries with policies those countries should adopt if they wanted to transfer more OPEC profits to themselves.
  • He found that the independently-set gasoline tax rates in Europe should be somewhat lower than they are now, while the tax rate in the U.S. should be somewhat higher.
  • However, if the U.S., Europe and Japan all coordinated their oil-tax policies, they would want to impose net tax rates of roughly 100 to 200 percent.

Currently, based on average recent prices, taxes make up 76.3 percent of the price of gasoline in Britain, for example, compared to 22.4 percent in the U.S.

Source: Hal R. Varian (University of California at Berkeley), Economic Scene, New York Times, October 19, 2000.


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