Economy

Cutting Gas Tax a Really Bad Idea

By Ryan McGreal
Published April 30, 2008

With oil prices in the $120 per barrel range starting to percolate to the gas pump just as seasonally higher prices kick in, a predictable call has gone up for some gas tax "relief" to help squeezed commuters.

Here's why that's a really bad idea, however well-intentioned:

  1. Gas prices always go up in the summer, due to increased demand from people going out more, travelling more, and going on more vacations. This phenomenon is waggishly called the "summer driving season".

  2. This is happening on top of historically high global demand for oil bumping up against a ceiling to the rate of production, stuck at around 85 million barrels per day.

Due to these two factors, gas prices are going up and motorists are suffering. So what happens if we cut the gas tax to lower prices?

  1. Instead of driving less in response to higher prices, motorists will drive more in response to lower prices.

  2. That aditional demand for oil will further strain a global oil production system already running at capacity, causing prices to go up in response.

  3. As a result, oil prices will end up as high as they are today, only less of that money will go into public transit (via the gas tax transfer) and more will go into the pockets of the oil companies, which already enjoy record profits due to the tight supply situation.

That doesn't even take into account the basic irresponsibility of encouraging people to drive more when we're supposed to be reducing our production of greenhouse gases.

It's a lose-lose-lose tactic that seeks unsuccessfully to preserve the status quo against the predictable consequences of maintaining the status quo.

Instead of throwing more good money after bad, we should be rolling up our sleeves and building cities with rich land use and transportation systems that wean us off our dependence on oil to get anywhere.

Ryan McGreal, the editor of Raise the Hammer, lives in Hamilton with his family and works as a programmer, writer and consultant. Ryan volunteers with Hamilton Light Rail, a citizen group dedicated to bringing light rail transit to Hamilton. Ryan writes a city affairs column in Hamilton Magazine, and several of his articles have been published in the Hamilton Spectator. He also maintains a personal website and has been known to post passing thoughts on Twitter @RyanMcGreal. Recently, he took the plunge and finally joined Facebook.

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By jason (registered) | Posted April 30, 2008 at 14:32:43

Also, for what's it's worth, Canada has the second lowest tax on gas (U.S. is lowest) compared with Germany, all UK nations, Europe etc..... Canada and the US have the lowest taxes on gas, yet are the places that this suggestion is made the most.
Perhaps the plethora of good travel options in European cities is one reason that they don't seem to mind the taxes on their gasoline. In North America, some people actually consider it a socialist waste of money to provide our citizens with more than one option for travel. Apparently we all like the lack of choice (but then turn around and complain about the oil companies who LOVE our lack of choice). Ah well, off to the gas station again.

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By Ryan (registered) - website | Posted April 30, 2008 at 14:51:39

There's a strong inverse correlation between fuel price and fuel consumption. Europeans pay about twice as much for fuel as North Americans ... and use about half as much (though their distance traveled by automobile is only slightly lower, indicating that they simply use more fuel efficient vehicles).

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By This Means War (anonymous) | Posted April 30, 2008 at 15:22:47

How awesome would that be, cutting gas tax to give a break to drivers while charging more for transit - all because gas is getting more expensive. Where do these people come from??

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By Balance (anonymous) | Posted April 30, 2008 at 21:04:23

One thing came to mind regarding the gas tax............does public transit pay the gas tax on their fuel supply?? To me, it doesn't make sense if they do, they'd be basically getting money back that they paid when they purchased fuel for their fleet. I don't know what the answer is...........does anyone out there? If I was a betting person, I'd assume that they'd pay the gas tax as well. What a boost it would be to the system if they saved this tax on their fuel.

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By Trey (registered) | Posted May 22, 2008 at 12:01:03

Cheap gas is the reason we are in the problem we are in. Keeping gas cheap(er, then yesterday) is not the solution. Nor can anyone call this an 'energy solution'. Gas will never be less then a $1.19/L ever again. Forget about it. It's time to dust-off Richard Gilbert's report to the City of Hamilton and face the facts. CHEAP GAS IS GONE FOREVER. Just like in the 1920s travel was only for the rich who could afford it.... it's not a human right to have cheap transportation fuel. perhaps what is happening is a return to the "milk man" and local economies. And that's not so bad.

A Saudi Arabian phrase goes like this, "My Grandfather rode a camel, my father drove a car, I fly a jet and my son will ride a camel."

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By David (anonymous) | Posted May 23, 2008 at 10:56:01

"Cheap Oil" wasn't exactly the problem, because it was only cheap then by comparison to today. The real problem was that we have had 60 years of taking advantage of it by building suburbia and structuring lives with long commutes, and then living in an orgy of consumption and debt that has helped force oil high due to currency collapse. With the converging emergencies of peak oil and end of the Dollar and world tensions, we need a lot more than a gas tax reduction - we need a complete restructuring of the old life "as we knew it".

But near term, the costs of attempting to maintain what we have built will force everyone from the consumption mode to the survival mode, and that is going to reduce the economy drastically - something that really needs to happen anyway. Pressure will come off oil production as economies find a more sustainable balance, but it is going to mean some big changes in Western lifestyles.

Trucking companies are going under, and the days of the 3000 mile Ceasar Salad are about over. Kunstler's "World Made by Hand" view might not be far off target. The history of industrialization may be nothing more than a 100 year blip on the timeline, with life before it and after it closely resembling each other.

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