Saturday, January 10, 2015

Gasoline Prices, Gasoline Tax and Politicos

Gasoline prices have fallen. Technological innovation has brought more oil supply and therefore more gasoline to the market place. A welcomed price break for consumers. Yet the same welcomed price break for consumers presents a political incentive to increase gasoline taxes. The argument comes with plenty of notional propositions including the need for additional tax due to slack demand of gasoline. That demand, in part, is slack due to vehicles achieving better gas mileage. (1)

Problem is, demand for gasoline is increasing, merely not increasing at the pace of supply available, therefore price falls. Demand is increasing and the tax per gallon of gasoline is generally fixed, meaning twenty gallons of gasoline at $3.69 yields the same tax revenue as twenty gallons at $2.14 (the tax per gallon is fixed whereas the total price per gallon is variable). Therefore, tax revenue is increasing, not decreasing, despite fuel economy of the aggregate fleet. Besides, the fuel economy of the aggregate fleet is a result of politicos and their legislation not a result of individual choice. (2)

Maybe the subject of gasoline tax revenue requires a visit to public choice theory.

The public choice theory argument is: Politicos champion the building of infrastructure and concentrate focus on the price to build and the wonderful things the “building” will bring. Yes, the benefit exceeds the price in their “economic development” calculation (or non-calculation as the case may be). Yet the same politico ilk fails to price long term maintenance price into their “building“, meaning taxpayers, decades later, are forced to pay the under funded or unfunded maintenance feature of the past “building“.

One might conjecture that the situation is akin to the classic case of cascading unintended consequence regarding “monument building”. Monument building is a public choice theory proposition of politicos building things with other people’s money as a monument to their “doing something”. Matter-of-fact, politicos are so vain as to name the monuments after themselves or their favorite past politico of the same ilk. Meanwhile, the-last-man-standing pays the price of cascading unintended consequence regarding “monument building”. The ongoing maintenance, which the monument required but was not properly priced in by politicos, requires a future set of taxpayers (you) to be saddled with the price to maintain something that has not been properly maintained.

The building phase is a period ripe for political constituency building with other people’s money. Surely politicos would enjoy the maintenance phase, and direction thereof, regarding other people’s money. Yes, during the “repairing” stage of their own making due to a under-funded or unfunded phase, politicos would like to spend your money again.

Stated alternatively, the-last-man-standing pays the price of cascading unintended consequence regarding “monument building” of under funding and/or unfunded maintenance. The politico frames the under funding and/or unfunded maintenance phase, and call for more tax revenue, as unrelated to, or exogenous to, their own political dupery and nitwitery of under funding the “monument building” phase in the first place. Hence a new tax revenue stream for a new period of “repair” is called for, and not so incidentally, ripe for political constituency building with other people’s money. Wash, rinse, dry… begin process again. Sweet!

Politicos many times rely on special interests to make their case for tax increases. Special interests that will directly benefit from the tax revenue being spent, focused up them as it were, always champion a tax increase. Enter the U.S. Chamber of Commerce business group and AFL-CIO union federation: special interests extraordinaire! You guessed it! The U.S. Chamber of Commerce business group and AFL-CIO union federation back a tax hike on gasoline. If anyone can solve their own problems with the use of other people’s money, it certainly is this coalition (or more succinctly under the theory of ‘syndicate’). (3) (4)

Returning to the monument building episode, politicos frame the building phase as economic development but rarely if ever price in the long-term maintenance of the monument they propose to build. If the maintenance price is factored in their “economic impact guess”, their wild guess, will look much less rosy. If the taxpayer knew they and those coming after them would be required to pay ongoing maintenance, many times far in excess of the original monument price, taxpayers might reject politicos building things with other people’s money as a monument to their “doing something”.

If one ponders the debate point of infrastructure crumbling, then one might want to find “why” infrastructure crumbles. Is the crumbling due to lack of tax or lack of foresight? Is the crumbling due to monument building with ongoing maintenance not factored in when politicos want to spend other people’s money as a monument to their “doing something”?

Also, the debate point of infrastructure crumbling is sophistry. Road, bridges and general social overhead capital is in better shape today than anytime in the last twenty years. Oops! (5) (6)

One might also consider the political class as the quintessential shirking partner. Yes, the partner that wants part of the gain without putting forth any effort. That’s right, anytime one gains, be it through irksome toil such as work or technological innovation reducing price, any gain one enjoys, becomes fertile ground for the shirking partner, the political class. (7)

Finally, the gasoline tax is a regressive tax hitting lower income individuals hardest. Should the working poor or those climbing the economic ladder from below pay more now that they have increased their meager disposable income due to technological innovation?



(1) In Low Gasoline Prices, an Opening Emerges for Higher Taxes, WSJ, 01/08/2015

(2) Ibid

(3) Ibid

(4) A Theory of Syndicate, Pichler and Wilhelm.

(5) New report shows state highways in good shape, USAToday, 09/01/2010

(6) 19th Annual Highway Report, Reason Magazine, 09/02/2010


(7) From Economic Man to Economic System, Harold Demsetz