Tuesday, April 25, 2006

Once Again ... The Price of Gas

I keep hearing people saying absurd things about the price of oil. The primary reason for the increase in the price of oil is that demand is skyrocketing. Here are a few of the wrong things people say about the price of gas:

A: The price of gas is going up because of taxes!

This statement is wrong. In the case of gase, prices are a fixed dollar amount and have not been raised. For that matter, if the taxes were lower, the proportional increase that we would be seeing at the pump would be higher. GasPriceWatch tells me the Federal gas tax is $0.184. The Colorado tax is $.22 per gallon. Utah taxes are $0.245. So, we are looking at a tax of about 40 cents a gallon.

In the last 5 years or so; we've seen an increase of about $1.00 per gallon to $3.00 a gallon. That is a nasty three fold increase. If the taxes were $.25 a gallon lower, we would have seen an increase from $.75 to $2.75. That would be a 3.6 percent increase!

The rise in gas prices in not being driven by a rise in taxation.

Personally, I think that, after prices stabilize, the government should think about raising gas taxes.

b: The Government is benefitting from the high gas price.

Since the rise in gas prices decreases consumption, then it reduces the amount of taxes collected. The government does get increased revenue from corporate taxes on oil companies and increased taxes on the income of mudloggers and other colorful characters in the gas industry. Of course, this increase is partially offset by the increased deductions for gas consumption in business and recessed economic activity caused by the rise in gas prices.

The US government is one of the biggest gas consumers in the world. The increased gas prices are hitting all areas of our resource intensive government hard.

c: Increasing production capacity will solve our problems.

In most situations, increasing production capacity solves supply issues. The consumption of a nonrenewable resource is a bit different. Different reports I've seen seem to indicate that the world is sitting near its maximum oil extraction rate. Any artificial increase in the extraction of oil simply transfers the dwindling reserves that future generations have into our gas tanks.

It is a hard fact to accept, but I fear that conservation of fuel and the development of alternative renewable energies are the only real long term solutions to our problem. With gas at $3 a gallon, we need to make sure we use each gallon wisely.

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