Federal Gasoline Tax – Missing An Opportunity?

Oil prices dropped this week to below $60 per gallon. Most people’s reaction might be summarized as “Hurray”! But, are we missing an opportunity?

The new lower price levels will bring a mixed set of blessings. Consumers will find more money in the their pockets at the end of the week, and in theory will have the means to spend it elsewhere. Local businesses are beaming with joy at the prospect of greater consumer shopping. But there’s more.

Airlines and large corporations in general see lower oil prices as helping their bottom lines.  In a free market, sooner or later, this increased profit should find its way to lower prices to customers.  Another plus.

On the other side, automotive companies who have spent billions developing new, more fuel efficient models are perplexed.  Lower gas prices could stimulate increased car and truck buying.  But, these auto companies have already sunk energy conservation investment in new tools, new engines, and in Ford’s F-150 case, new Aluminum sheet metal. These investments were premised upon a certain (and higher) gasoline price/gallon. Lower oil barrel prices fosters lower gasoline prices.

Auto companies worry that consumers may return to the power of gas guzzlers leaving their new gas efficient vehicles unsold.   Auto companies may fear they had invested too soon.

Adding to this, the previously booming “fracking” industry is wondering what has hit them. Oil at $60/barrel was not in their game plan. One by one these new drillers, shippers, and all their suppliers are getting the pink slips ready. Further exploration is out of the question for the time being, and continuing current operation is being questioned. Hmmm.

Back in the early days of the oil cartel, the Saudi head philosophically mused that any increase in oil price was a very serious matter and that any increase must be measured. New cartel members, on the other hand, wanted to raise oil prices as quickly as possible so that they could finance their local economies. Saudi Arabia often resorted to increased oil output to teach these greedy oil producers who was boss. The Saudis understood how complicated the world’s economy was and how mysteriously it was connected to rising oil prices.  Hmmm.

Today’s precipitous drop in oil prices seems at first wonderful to the consumer but it is likely to produce many unintended disturbances elsewhere. While the absolute price is important, it is the rate of change which could bring the greatest consequences.  How do companies plan for the future?

If the world were rationale, world oil output would already have been cut back. Oil price is simply the result of supply and demand. The world is not acting rationally because it has gotten fat on high oil prices. Low oil prices means far lower profits for all oil producers.

So what’s the missed opportunity?

The US could increase its Federal tax on gasoline. A twenty cent/gallon increase would be hardly noticed and would bring about $25 billion additional for use on roads and bridges maintenance.

The timing for a gas tax increase couldn’t be better. The GOP is against taxes and certainly tax increases but roads are deteriorating and bridges are decaying across the country. The recent lower oil prices is a gift for both political parties.

There is probably little chance Congress will recognize the early Christmas present sitting out there. Oil prices may continue to drop further ($50/ barrel is frequently hinted as the bottom). The 20 cent tax increase could go unnoticed (to the pocketbook) during this bonanza. With the world oil supply potentially so large, a return to $120+ oil price levels should be a long time off.

It’s time to fix our roads and bridges and those who use them should be paying.

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