Suspend the Excise Tax on Gasoline!!!

According to an article in the Indianapolis Star, the Speaker of the Indiana House of Representatives (Pat Bauer) has called for a suspension in Indiana's gasoline tax. To his credit (and, boy, did I never think I'd be typing something like that), Indiana's governor (Mitch Daniels) has not endorsed the idea (although he has refused to rule it out). Bauer attributes high gasoline prices to the "greed" of the gas companies; Daniels suggests that even a suspension of the excise tax would make little difference in actual gasoline prices.

Why have gasoline prices gone up so much?

First, the demand for gasoline increases in the summer, as rising gas prices is an annual event. This year, however, the increases have been quite dramatic. So something else must be happening.

So, second, there are supply restrictions. Refinery capacity has increased very little in the US over the last couple of decades--no one wants an oil refinery in theyr back yards, and that's understandable. But opposition to new refinery construction means there is very little slack in the system. And the costs of switching refineries from winter production (more fuel oil) to summer production(more gasoline) have increased. And the increasing segmentation of the gasoline market (different blends/additives required/banned in different parts of the country) make it harder to ship gasoline from one part of the country to another.

And would suspending the gas tax help? Well, prices might come down some. But that would encourage people to buy more gasoline. And the result of that would be that the after-tax price of gasoline would almost certainly rise--meaning even larger profits for oil companies.

So, what should we do? The solution is to encourage conservation--by encouraging shifts to hybrid and high-gas-mileage cars. How can we do that? The easiest method, as far as I'm concerned is to tax (heavily) cars that get lousy gas mileage, at purchase, or with the license plate renewals. And it doesn't make sense to couple that with lower gasoline taxes. Lower income taxes or lower general sales taxes, maybe.

Now, that's sure to be politically popular.