>A nickel a gallon

>Assuming that demand for gasoline is relatively inelastic (seems to be true, we’ve doubled the price but only cut demand a couple percent — I’ve seen a paper citing a short term elasticity as low as 0.03), then a 5 cent increase in the Federal gas tax would likely not cause many people to stop driving.

What might cause some people to stop driving (and therefore cut demand and reduce gas prices) would be to spend the resulting revenue in a way that encouraged people not to drive.

According to this EIA chart, US consumers use 3.4 billion barrels of finished gasoline per year, or 142 billion gallons per year. Assuming that 80% of the fuel is taxed and we increase the tax by 5 cents per gallon, that’s 5.7 billion dollars in revenue.

Most of it you could refund to people as a per-capita energy tax credit. This will take the regressive sting out of taxing a basic necessity of life. Unfortunately, per capita you’re only talking about $15 here so it doesn’t seem worth it.

Instead, I would award ten $100 million dollar prizes to the ten cities that identified permanent transit improvements which met the following criteria:

Improved traffic congestion
Reduced dependence on liquid fuels
Enhanced property values
Reduced land use per capita
Reduced air pollution
Reduced Vehicle Miles Traveled

Usually, this would mean some sort of rail transport, but there are other options. If your city chooses a streetcar, perhaps to replace your most popular bus line downtown, you can get about a five mile line for $100 million. You might be able to argue that each of these systems would provide 20,000 riders per day (the most used bus lines in DC run about 15,000 per day), or 150,000 riders total. Two of those riders could be estimated to burn half a gallon of fuel per day, so we’re talking 9 million gallons of fuel saved (based on 240 commuting days per year).

Additionally, I would award one or more $1 billion dollar prizes to the city(ies) that combined a transport system improvement meeting the criteria above with market-based strategies to decrease congestion and parking usage. Usually this would mean some sort of congestion charging or performance-based parking system. The rail system might be the start of a minor heavy rail system, or more likely a network of streetcars, about 50 track miles total. You would expect each of the rail systems authorized to provide about the same relief as all 10 systems authorized above, so it’s another 18 million gallons here for the rail system, plus additional reductions due to the market-based pricing.

In all, these two programs would more than double the number of new rail starts we’ve had over the past decade (author’s estimate from Light Rail Now! news updates), as well as provide an irresistable carrot to further reducing car usage by promoting market pricing for driving and parking.

A nickel a gallon. A little more than 1% of the current price of gas. If you look at the relative demand and supply price elasticities, half of the money will come from oil producers in the form of lower revenues.

So you’re really talking about three or four cents per gallon, and in exchange we get 150 track miles of streetcar built, every year. For the average car that drives 15,000 miles per year and gets 25 miles per gallon, that’s at most 30 dollars per year, more likely lower due to reduced demand and elasticity effects.

I can see why Europe has increased gasoline taxes to pay for transit. You can seriously build some infrastructure with very low levels of taxation, and that, in my opinion, helps the economy grow.

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About perkinsms

I'm an engineer and father interested in transit, parking and economics.
This entry was posted in budget, development, economics, environment, fiscal, gas, government, politics, spending, streetcar, tax, transit. Bookmark the permalink.

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