Taxing Situation

8 06 2011

There is no better way to get Americans up in arms than to start talking about the price of gasoline. And now the CEO of GM has suggested the government raise the federal gas tax by $1 a gallon.

You only thought you wanted a vacation.

At the moment, the federal tax per gallon is a modest 18.4 cents. State and local taxes are also added, with Texans now paying an additional 20 cents per gallon

Now a little primer on consumption taxes. Gas is taxed heavily because the government perceives the demand curve to be almost perfectly inelastic, meaning people will continue to buy gas at almost any price…at least up to $4 a gallon so far. Gas taxes are little different from “sin taxes” placed on alcohol…they are not a deterrent, but rather a clever fundraiser. And, with all consumption taxes, their impact tends to be most onerous on those with the lowest incomes, because they pay a disproportionately higher share of their meager income in taxes. Call it the poverty tax.

And now GM CEO Dan Akerson wants to add $1 at the pump, with 50 cents being imposed immediatewly, and the remainder being phased in.

Bear in mind, of course, that Akerson has no legislative authority. In fact, for the CEO of a company recently bailed out by US taxpayers, it can be argued it takes a lot of chutzpah to say anything like this at all.

But read closer. Akerson wants the $1 tax increase instead of higher fleet mileage targets the federal government has imposed for the year 2025. It’s almost like saying, “There is no way we can meet this…so let’s just tax consumers into driving less.”


Before you kick me out of the party, I would like to add that the US already enjoys very cheap gas vis-a-vis other developed nations. While in the UK recently, I calculated their gas price to be US$8.90 per gallon. I only saw one pickup truck (a small Honda), while everyone else was driving small, fuel efficient Minis, SmartCars, electric vehicles and the like.

London also has a congestion tax, whereby those who drive within the inner city pay £10 (US$17.50) per day for the privilege of clogging the city’s streets. A hefty fine of £60 – £180 is levied to violators. No wonder there are 4 million rides on the Tube every day.

But back to Akerson. His argument is sure to rile most drivers, and, as he noted, most Republicans (who seem to favor cheaper gas). But it should also rile Democrats, precisely because it is an onerous tax on the poor (unless you are so poor that you cannot afford a car at all).

More importantly, though, Akerson is wanting us to shoulder his company’s inability (once again) to meet standards. Regardless of what the federal government has imposed, it is his company’s task to adapt or exit the business. Brow-beating us into driving less is not the way to achieve, in a twisted kind of way, lower national fuel consumption.

While I will argue that cheap gas is not an entitlement, and we should never assume that its supply will be plentiful enough to meet our traveling needs and wants, it’s just plain wrong for Akerson to start mouthing off like this. Yes, we all need to reconsider our driving ways. In the long run, we all will have the opportunity to re-evaluate where we live in relation to work and school, as well as which vehicle (if any) we buy.

In the mean time, I just wonder what a $1 hike would do to quantity demanded. As much as people would complain, I suspect we would keep on driving. But when it comes time to replace the current ride, I bet folks would be looking for something made by Not-GM.

Dr “Fill ‘Er Up” Gerlich




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