Monday, April 28, 2008

Why we can afford a gas tax .. NOW

UPDATE: As commenter wellbasiclly points out, gas prices are different across state borders, throwing a wrench into my argument. I've e-mailed Professor Baker to see if he can help straighten this out.

This gets a bit wonky, but the bottom line is this: the price you pay for a gallon of gas has little to do with the amount of tax on a gallon. With oil refineries running flat out, according to the oil companies, what determines the price of a gallon of gas is simply demand. This week's record price in Massachusetts is $3.54. It's $3.54 with our $.21 state and $.184 federal gas tax. The market has set the $3.54 price and the market will get $3.54, even if John McCain's ill-considered gas-tax holiday were law -- the oil companies would pocket the $.184 instead of the feds.

The flip side is also true, the market price would be $3.54 with a $.26, .31, or .42 state gas tax. It would just mean a little less for the oil companies. And, a lot more money for Massachusetts to spend on roads, schools, health care, &c.

Oddly enough, it's while gas prices are highest — while oil companies are otherwise making a windfall — that we should redirect some of the price of gas to the Commonwealth's coffers.

1 comment:

wellbasically said...

If that were true the price would be the same across state lines.