Gas Prices: Taxes, Inflation, and a Little Bit about Ukraine

The embedded Tweet is from one of my state’s Senators, Richard Blumenthal. He used to be our state’s Attorney General. He made his name and career fighting against price gauging, rogue polluters, unfair labor practices, corruption, and things like that. Maybe he thinks that’s what he’s doing with this legislation. He would be wrong, but I’m trying to give him the benefit of the doubt. It’s not just Blumenthal, though. Fuel tax relief is something I’ve been hearing a lot of noise about recently at both the national and state level. It’s so wrongheaded, I have to speak out.

Before getting to the heart of the matter, I want to say that I get why some people would find lower fuel prices appealing. I really do. I currently work two jobs and go to school. None of those three things are readily accessible without a car. (One of the jobs is on a bus route, but my house isn’t, and the closest bus stop is a different route. I could take the bus and make the transfers, but it would involve a decent hike and take a lot more time than I have.) So, I’m dependent on my car and gasoline. And, even with two jobs, I haven’t sniffed the poverty line since before the pandemic. I’m feeling our inflation. It hurts every week or so when I need to fill up. Having said that, I still recognize that suspending the gas tax is the worst kind of short-termism. Even if it momentarily relieves a little stress, it will hurt me in the long run.

People have a bad habit of only thinking about taxes as something they have to pay. It’s understandable since tax law, accounting, and government budgeting and bureaucracy are mostly opaque to most citizens. And, even when they are visible, tend to be designed in a way that activates many of our cognitive biases. But we need to keep in mind the “back end” of taxes, what they are spent on. In the case of gas taxes, they are mostly used to pay for infrastructure. Infrastructure is worth paying for. And, in case Senator Blumenthal forgot, infrastructure is one of President Biden’s signature priorities. It’s strange that a member of the president’s own party would want to undercut that by suspending the needed revenue stream.

He doesn’t use the word “inflation” in his tweet, but it is clearly what he’s getting at when he mentions rising prices. Inflation is a big concern for most people. However, like taxes, people don’t tend to look at the whole picture of inflation. Rising prices are not necessarily bad. In order to know if they are bad or not, we have to look at a bunch of other factors. If buying power is increasing at the same rate or faster than inflation, it’s pretty benign. In fact, the Fed is typically trying to balance the economy with a positive inflation rate. (That’s in large part because they are terrified of deflation. I think a lot of that fear comes from a lack of imagination, but that’s getting too far off topic to address here.) The central banks want inflation. There are situations where inflation is bad, very bad. No one wants to need a wheelbarrow full of cash to buy a loaf of bread. But I haven’t seen any evidence that we are anywhere near there. Suspending gas taxes and jeopardizing Biden’s agenda is pretty extreme for where we are now.

Another thing to think about is the price of gas itself. Sure, it’s going up, but what does that mean? The price of gas crashed at the beginning of the pandemic. It would be shocking if it didn’t rise as we come out of that crisis (fingers crossed, knock on wood). Gas is still under $4.00/gallon in the US. We have a ways to go before we’re in any kind of historic range.

Plus, even if it climbs to $5 or $6 or even $7 per gallon it will still be less than half the true price of gas. This is something that doesn’t get talked about nearly enough (the link I used is more than ten years old because I couldn’t find a more recent one), but when you actually look at everything that goes into drilling, refining, and transporting gas and then add the environmental damage caused by gas, gasoline is extraordinarily cheap. It always has been. What we pay at the pump doesn’t come anywhere near covering the costs that gas imposes on us.

Finally, we need to appreciate that Russia’s invasion of Ukraine is a bogus reason for gas prices to be going up. America is a net exporter of oil. This conflict likely won’t and certainly hasn’t yet disrupted the US gas supply at all. We shouldn’t react to price gauging with a suspension of taxes. We need to address the profiteering directly.

The worst part about all of this is that we’ve done it to ourselves. We all know we’re making our home a less hospitable place by using fossil fuels. We’ve known for decades. But we’ve been completely unwilling to change our energy sources or consumption. The rest of Europe should have known better than to get addicted to Russian gas. The US should have stopped using, or at least drastically cut down on, personal gas-powered vehicles a long time ago. Suspending the gas tax just rewards our bad behavior. We should be doubling or tripling the gas taxes, not suspending them. This is the worst kind of election-year pandering. And, I hope you’re listening Senator Blumenthal, the people who will actually like this idea aren’t going to vote for you anyway.

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