Comments on: The inverse-floater gasoline tax A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 By: Benquo Sat, 20 Jun 2009 19:20:49 +0000 @ KenG:

I had assumed that Surowiecki didn’t mean “fixed” literally, since it’s so clearly a bad idea for the reasons you mentioned above. Maybe I was wrong. Anyhow, it seems like we agree on substance.

My point still stands about local (or short-term) pressures, though: if the tax is calibrated to an index of gas prices across the country (rather than case-by-case), there would still be downward price pressure on individual suppliers.

By: KenG Tue, 16 Jun 2009 21:11:28 +0000 @benquo, maybe that’s your idea, and not a bad one, but it’s not what Suroweicki is proposing. He wants a fixed price for gas.

And your formula would make politicians’ heads explode, which wouldn’t be a bad thing, except they will just defer to their lobbyists, I mean, advisers.

I would rather a gas tax that is a percentage that is equal to the percentage that consumption is over a target amount. So if the nation is consuming x gallons per month, and we want to get it down to y gallons, the tax would be n(x-y)/y. I threw in n there so that when we get close to the goal, we keep the tax high enough so we achieve the goal.

In the same vein, I would like a national sales tax on (almost) all individual consumption, where the tax rate is proportional to the national trade deficit, as the deficit is a measure of how much more we are consuming than we are producing. If the trade deficit represents 5% of GDP, then we have a 5% tax (it would actually be higher than that, as we would have to exclude basic necessities like food, shelter, health care, and education).

By: Benquo Tue, 16 Jun 2009 13:54:59 +0000 Oops – read “T c” as “T < c”.

By: Benquo Tue, 16 Jun 2009 13:53:30 +0000 @ KenG:

In essence, the tax schedule would set the tax per gallon equal to a constant, less some proportion of the price, with a lower bound on the tax at some point:

T = min(a-bP, c)
with a > 0, c >= 0, and 1 > b > 0.

In this case, a supply price change of d would move the consumer’s price by (1-b)d when T c.

If it’s logistically too difficult to assess the tax rate separately for each retail price, a single tax rate could be calculated based on a national index of gas prices and adjusted automatically). This would have the added benefit of keeping the short-term demand slope at its current steepness — I wouldn’t expect local pressure on price to be affected much at all.

By: KenG Mon, 15 Jun 2009 19:24:18 +0000 @Benquo, maybe you could provide an example of how such a tax would be implemented. Suroweicki said “the tax would rise when the price of gas fell, and vice versa” – so if demand falls, why would any supplier have an incentive to lower prices, if the tax will increase to offset the price decrease?

A fixed price eliminates the negative feedback path that every control system depends on. If the price never changes in response to demand, then consumers have no cost reasons to change their habits.

By: q Mon, 15 Jun 2009 19:08:02 +0000 make people drink 0.1% of what they use above a threshold.

By: eu Mon, 15 Jun 2009 17:34:08 +0000 This stuff is common practice here in the EU.

By: john Mon, 15 Jun 2009 16:48:32 +0000 Felix, the smoothing part you’re talking about is really a gas price cap, except the government would really have to use some of the ‘tax’ proceeds to hedge in order to cap the prices.

Then they would have to subsidize the refiners using the hedge if prices go up. Otherwise, refiners just wouldn’t refine anymore if oil prices went up but gas prices did not. e.g. Hawaii, Alaska.

There are private firms that offer this gas price cap but those firms hedge. The government can’t take this exposure to high prices. If they do hedge they’ll have to redistribute the proceed of their hedge to refiners so there is no complete disruption in supply.

By: Eli Baker Mon, 15 Jun 2009 16:44:05 +0000 I repeat: a high gas tax will unfairly affect the rural population who depend on the auto because their governments have never supported real rail and bus travel. Many poorer rural families have more than one car: one each for each working member.

It’s a shame we can’t all bike to work ala Felix.

By: dWj Mon, 15 Jun 2009 16:29:31 +0000 Cap and trade is going to be more like a per gallon tax than a per value tax. A gallon of gas produces a fixed amount of carbon; spikes in gasoline prices caused by supply (or foreign demand, which has the same effect on the United States) will reduce the incentive to produce carbon emissions, and will therefore be associated with lower prices of carbon emissions, though spikes driven by U.S. demand would drive carbon prices higher. Insofar as (short-term) gasoline price variations seem more often not to result from domestic consumption, the effective size of the tax will in fact do what Surowiecki wants, though probably not to the degree he might hope for.

Insofar as gasoline demand is more elastic in the long run than the short run, I’ve thought of Surowiecki’s idea before, but with an addendum: the short-term drop in taxes to accommodate the rise in pre-tax prices would be linked to a commitment to raise the taxes in the future. The tax would be based on the deviation of the pre-tax price from a long-run moving average; a rise in the price of gasoline thus raises the baseline for the future. Consumers would be shielded for a short period of time from higher prices, but would be put on notice to make adjustments for the future.

I don’t know how well it would work in practice. Maybe consumers wouldn’t behave rationally; maybe the sharp, unexpected spikes have a non-linear effect. Maybe the political pressure not to raise taxes in a pre-committed way would be different from the pressure to lower taxes. I’d be kind of interested to see. But simply trying to set a fixed (after-tax) price that is entirely unresponsive to supply and demand innovations sounds like asking for trouble.