Do not lower Gas Taxes: Here’s why.

Because it is a continuation of the problem, so some tax will come off. So what? The price of crude will continue to rise, and quickly make up the difference. It’s not “relief” it’s a vote grab.

By lowering Gas Taxes we are in effect saying.

“We do not like to pay high prices for gas, so we will make the prices lower.”

That is not addressing the underlying cause of these high gas (and crude oil) prices.

The cause of the high oil prices is a simple case of uncertainty about supply. Whether we are nervous because of Iran possibly cutting off it’s exports due to US military action… or because Nigeria is having civil unrest issues… or because Gulf Coast Hurricane damage is still limiting both crude oil and refined gas production. They *all* have one thing in common… they all affect supply.

If we weren’t having a supply/demand issue, then we wouldn’t be worried about one, or any of these things, and the market prices would not be reacting the way they are.

In that fashion… it’s quite simple.

So, back to my first statement. What we should be saying is:

“We do not like to pay high prices for gas, so we will *do* something to *cause* prices to lower themselves.”

Notice the subtle difference in the two statements?

If you do, and you combine the obvious facts that a) supply cannot be increased and b) demand is growing, then it becomes clear that lowering Gas taxes is exactly the opposite of what we need to be doing.

More below the fold…

OPEC countries have made it clear that they are pumping oil as fast as they can. And no, the Alberta Oil Sands are not our saviour they’re pumping as fast as they can too… and no, it’s not a refinery issue, at least not in North America, if it were, this proposed refinery would have oil to refine.

Clearly, supply from our biggest exporters has hit a wall… whether it’s “the” wall, we can continue to debate, or graph watch, but unless you’ve been totally ignoring the news, you have seen that the Stock Market seems to think something is up, no pun intended.

So.. if Supply is at the wall, then there is only one other variable to play with… Demand.

The term we should all become familiar with is:

Demand Destruction

Now that’s perhaps a stronger word than it needs to be, but I have no doubt it will be the one used by economists and the media to describe what either needs to happen to bring prices down… or what will inevitably happen if prices continue to rise.

Forgive me, for I am still hurting from my Vancouver Canucks missing the playoffs… so I will now invoke a hockey/sports analogy to explain our “destiny”.

I believe we are at a critical point. We’re down, but we’re not out. We still have an opportunity to limit our own demand patterns before market forces get out of hand.

Like my Canucks 20 games ago… we still control our destiny. It will be a tough road, there will be adversity, but if we are successful we will be much more likely to come out on top.

If we choose the “easy” route, if we choose not to make the extra effort, then we leave ourselves open to the possibility that we will lose. We may not lose, but then again, we may… my Canucks didn’t put in the effort. They lost. I don’t want to be like my Canucks.

We have all seen how rising gas prices have affected us. We are not happy about it. It makes our lives more difficult. It forces us to do things that we haven’t done in the past… like:

carpool
take public transport
ride share
car share
walk
bike
buy more fuel efficient vehicles
turn down our oil or gas furnace
turn up our A/C

These are all things that are more difficult than our normal patterns and habits. But they are things we are willing to do, given the proper “push”.

If *everyone* were to do these things, then our demand for oil and gas products would naturally start to decrease. And the pressure on supply would naturally start to decline.

So, rather than decreasing taxes, which would simply encourage people to maintain their regular patterns… we should be *increasing taxes* on gas, gradually, but steadily… so that the shock is not severe enough to cause economic turmoil, but it is seen as “inevitable” enough to force us to change our habits.

That doesn’t mean there aren’t lots of places where we could cut taxes: freeze GST on all Hybrids for the next 5 years and reduce taxes on new cars with MPG rating higher than 25mpg. Reduce gas taxes for people in a “registered” carpool or ride-share. Lower bus and train fares (Greyhound and VIA Rail, as well as Commuter Transit).

Every public service that we must pay for is, in effect, a tax that our Federal, Provincial and Municipal governments levies on us. Certain services are meant to lower our oil/gas consumption… we must lower those services, that way, we are effectively lowering oil/gas taxes while at the same time addressing the supply/demand issue.

How our export-based industries have fared with the rising Canadian Dollar is an excellent example… despite the ongoing rise in our Dollar, our economy is still creating jobs and growing strongly, we are adapting. It’s not easy, it’s not without it’s hardships… but it’s happening, we’re surviving.

The EXACT same thing needs to happen on the Consumer side… we need to start changing our habits, we must adapt. If we don’t, then we will be at the mercy of the Markets, and George Bush’s or Abu Terrorist’s trigger finger. I know which option I would rather take.

1 thought on “Do not lower Gas Taxes: Here’s why.”

  1. Hi, Chris,

    Not a lot of activity here. It’s funny how people from all over the continent are interested in a premature baby, but any sustained discussion of politico-economy engenders general apathy or outright avoidance. The following was from the Small Dog Soapbox, an intermittent rant from Don Mayer:

    Gas prices were high when I was in Hawaii and they are rising fast now that I am back in Vermont, with a gallon of gas costing over $3. On the one hand, I think that price is incredibly low considering the finite nature of the petroleum resources of our planet and the fact that it takes a couple million years to make new oil. But on the other hand, I see the Chairman of Exxon/Mobil pulling down nearly a billion dollars in compensation last year and all oil companies enjoying record astronomical profits, and something just doesn’t compute.

    It seems that every time gas prices rise, there’s a convenient excuse. Last time it was the refineries along the Gulf Coast that were damaged by Katrina and this time we are told to blame it on Iran and Nigeria. It is just a bit too coincidental that these price increases come at a time when gasoline usage will increase because of the summer weather. It is not coincidental, however, that these increased prices result in huge windfall profits for the oil companies. Don’t blame your corner store, because they are still only making a few cents on a gallon. It is those same oil companies that met in secret at the White House to plot “energy” strategy that are cleaning up.

    While these guys are stuffing dollars into every pocket in their suits, the cost of living is rising faster than increases in wages and we are all paying for their new suits with more pockets! Vermont Congressman Bernie Sanders said this week that there was no doubt that if George Bush called all the CEOs of the oil companies to a meeting in the Oval Office and said to them “in a loud voice” (maybe in his “decider” voice), “Hey, guys, we have to have lower gas prices!” that it would be about five minutes before prices fell at the pump.

    While it is true that there is an increasing demand for oil, these price increases are not based upon a lack of supply in the supply and demand equation because there are now record reserves of oil. It is certainly not because we haven’t drilled in the Alaskan wilderness, either. It seems to me that it is a conscious effort on the part of the oil companies to use world events as excuses to raise prices and increase profits.

    The best short-term answer to limit our dependence upon foreign oil is conservation. It is outrageous that the cars being produced today have poorer gas mileage than those produced 20 years ago, especially when technology exists now to achieve gas mileage well over 40 mpg! If we spent only a fraction of the money that we are spending on a mistaken war in Iraq on energy conservation, we could reduce our dependence upon foreign oil by millions of gallons a day.

    The President promoted some initiatives to increase the production of ethanol. On the face of it, this seems like a good idea. Make some fuel from the huge surplus agricultural capacity. The problem with this concept is that to plant, harvest, process, and transport ethanol (it is highly corrosive, so it can only be shipped in special rail cars) requires more energy than it produces. So to make a gallon of ethanol might require a gallon and a half of gasoline. That’s some voodoo economics for sure!

    As the rest of the world catches up to us in oil consumption, there is going to be increasing tension over the remaining oil supplies. The wars in the Middle East are about oil. I don’t think we’d care much about Iraq if they didn’t have huge oil reserves. We are establishing ourselves as a permanent presence in that part of the world with huge military bases and interference with countries and governments to protect the oil for ourselves. World politics is being driven by oil because forward thinkers in even the most conservative governments see the handwriting on the wall. The world’s oil supply is woefully insufficient to meet the world’s oil demand.

    The easiest way to reduce oil consumption is to conserve and to make energy efficiency not only a smart choice but the right financial move, too. Here in Vermont, years ago we established a public utility whose responsibility it was to reduce energy use through efficiency. When they pay an incentive to put in energy-efficient lighting or heating, we are buying some of the least expensive energy that there is. This needs to become a national obsession. We need to embrace the long-term vision of a world that is truly energy starved and start the planning now on how to achieve energy independence rather than spending our precious resources (now about $95 billion a year!) in fighting wars to secure oil.

    Regards,

    Dan

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