The same supply and demand issues that led oil companies to increase prices and earn immense profits can be used to benefit the government and U.S. citizens.
Some Facts
Many oil companies earned huge profits in the first quarter of 2022 according to a Guardian article [1] and other sources. The Saudi Arabian company Saudi Aramco became “the world’s most valuable company” after its huge quarterly profits according to the Associated Press [2] and other news sources.
Retail gasoline prices in the United States have increased substantially because the supply is down and demand is high. Three gas stations near my Lexington, Kentucky, apartment on May 9th, 2022, advertised gas at the highest prices I've ever seen there: $4.29 per gallon for regular unleaded and $5.29 per gallon for diesel fuel, as shown in pictures of their signs.
Supply and Demand
Currently the supply of gasoline is down a bit (due to war in Ukraine, limited production by OPEC and other countries including the U.S., etc.). Demand remains high.
Until supply increases, persons need to reduce purchases. If it’s not done voluntarily, it will be done via (1) price increases, (2) rationing, or (3) stations running out of gas.
Maybe the best free market approach is to increase prices. Furthermore, instead of just oil companies raising prices to cut demand, I support raising gasoline taxes to increase federal tax revenue.
The higher taxes and thus higher retail gasoline prices, will lead to a decrease in demand. Decreased demand can lead oil companies to lower their prices.
Though for simplicity, I refer only to the gasoline tax, I support raising the tax on diesel fuel as well.
More Reasons Why Increasing the Gasoline Tax Makes Sense
Many problems with infrastructure have been mentioned in recent years. Bridges and roads need much maintenance and repair. In some areas we need new construction.
Furthermore, mass transit in the United States pales in comparison to the transit systems in several other countries. It could be partially funded by fuel tax increases.
The federal gasoline tax of 18.4 cents per gallon (and the diesel tax of 24.4 cents per gallon) have not increased since October 1, 1997 according to Table FE-1A on a Federal Highway Administration webpage [4]. Furthermore, the federal gasoline tax in the United States is much lower than that in many other countries, as shown on numerous websites. Indeed, almost all countries shown in a chart on CarScoops.com [5] have higher gasoline taxes than the U.S.
A gasoline tax increase could pay for much needed infrastructure repair. Furthermore, if part of the tax revenue is used to support mass transit (city and intercity bus systems, subways, intercity rail travel, air travel, etc.), it could encourage more people to use mass transit, thus reducing traffic congestion. Adding more sidewalks and bike lanes/paths would likely increase pedestrian and bicycle travel too.
It could be great if persons:
• use mass transit more,
• carpool more with trusted friends, neighbors, relatives, coworkers, etc.,
• bicycle more,
• walk more,
• and avoid unnecessary trips.
Fewer cars traveling fewer miles would lead to less pollution (as well as less wear-and-tear on highways). The increased exercise could help make us healthier.
Eventually we will run out of oil. But if we dramatically reduce our consumption of it now, it will be better for the environment. The production, transportation, and consumption of oil create a lot of pollution.
In addition, the huge production of oil from oil shale in recent years adds new environmental risks. The fracking process that is frequently used in producing oil from oil shale produces numerous small earthquakes and some damaging earthquakes, as noted by the USGS [6] and other sources.
Electric vehicles may be an alternative to gas and diesel-powered vehicles. But it will be at least a few years before electric vehicles are mass produced at affordable prices—and an electric grid supported by renewable energy sources adequate to recharge them exists.
Closing Thoughts
Tax increases are typically not popular with the public. But, we currently have a huge federal budget deficit. Furthermore, the deficit is expected to get worse due to infrastructure needs, increasing costs of Social Security and health care (Medicare, Medicaid, etc.) and other expenses.
Our transportation system needs major repairs according to many (most?) people. Therefore, it seems logical to get additional funding for fixing problems. Increasing taxes on gasoline (and diesel fuel) can help fund maintenance of highways and bridges.
A tax hike will hurt drivers, especially persons like truck drivers who travel thousands of miles annually in vehicles that get relatively poor fuel efficiency. But these drivers are already being impacted by current high prices. Better to have price hikes benefit the government and pay for needed projects for citizens than fill the coffers of oil companies.
Increasing taxes on gas and diesel fuels makes sense to me. The costs of maintaining and building highways have increased substantially since the tax was last increased in 1997. To generate revenue and to decrease demand for gasoline, the tax increase needs to be a large one. At least a 50 cents-per-gallon figure seems reasonable to me. Over the long term, I’d even support a significantly larger increase. Do you agree?
NOTE:
This article is adapted and updated from articles the author submitted to other websites in past years about raising the U.S. tax on gasoline.
ENDNOTES:
(1) Milman, Oliver; “Largest oil and gas producers made close to $100bn in first quarter of 2022”; Guardian; May 13, 2022; webpage accessed May 17, 2022; https://www.theguardian.com/business/2022/may/13/oil-gas-producers-first-quarter-2022-profits
(2)Debre, Isabel; “Saudi oil giant Aramco’s first-quarter profits soar 80%”; Associated Press; May 15, 2022; webpage accessed May 17, 2022; https://apnews.com/article/russia-ukraine-united-arab-emirates-saudi-arabian-oil-co-44809d786ae32adc178684a5ce3c6837
(3) “National Average Gas Prices”; AAA; May 17th, 2022; webpage accessed May 17, 2022; https://gasprices.aaa.com/
(4) “Federal Tax Rates on Motor Fuels and Lubricating Oil (1)” November 2021; U.S. Department of Transportation, Federal Highway Administration; page last modified November 16, 2021; webpage accessed May 17, 2022; https://www.fhwa.dot.gov/policyinformation/statistics/2020/fe101a.cfm
(5) Chilton, Chris; “Which Countries Pay the Most and Least Tax on Their Gas”; CarScoops.com; April 10, 2022; webpage accessed May 17, 2022; https://www.carscoops.com/2022/04/which-countries-pay-the-most-and-least-tax-on-their-gas/
(6) “Does the production of oil and gas from shares cause earthquakes? If so, how are the earthquakes related to these operations?”; USGS; webpage accessed May 17, 2022; https://www.usgs.gov/faqs/does-production-oil-and-gas-shales-cause-earthquakes-if-so-how-are-earthquakes-related-these#:~:text=Fracking%20intentionally%20causes%20small%20earthquakes,a%20M4%20earthquake%20in%20Texas.
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