Boston.com today has an article about people comparison shopping for gas prices due to the high prices now.
A few calculations:
If someone drives a relatively gas-guzzling, 18 mpg average vehicle, for a typical 12,000 miles per year, he will spend $2,000 each year on gas at $3/gallon.
Here are three ways that someone could cut this cost down by 10% ($1,800 per year instead of $2,000):
1. Try to find a gas station charging 10% less ($2.70/gallon instead of $3.00/gallon, a pretty substantial discount).
2. Drive 10% fewer miles (10,800 miles instead of 12,000).
3. Drive a car that gets 20 miles per gallon instead of 18.
Observations:
1. Except for lower-income individuals, price shopping for gas (potentially driving out of your way to save money) seems like a lot of hassle to save $200 or less per year.
2. If you’re really looking to save money, fuel economy is the way to go. There are many used and new cars that average in the 25-30 mpg range, and you can save about $100/year for each 1 mpg improvement (assuming 12,000 miles/year driving).
3. Obviously, methods 2 & 3 are better for the environment, traffic congestion, our dependence on foreign oil, etc. Driving less may even improve health (walking or biking instead of driving).
4. It’s interesting that the point at which people suddenly start taking notice of gas prices and trying to do something about it is when gas reaches $2.50-$3.00 per gallon. I don’t have much to add to that, but it’s always fascinating to see how different price points affect consumer behavior. One does have to imagine what it would be like if our prices were equivalent to European countries, where $4+/gallon is the norm.
5. Given the above point, increasing the gasoline tax by 25 cents/gallon would result in an annual tax increase per individual similar to the amount of the family leave payroll tax that was proposed. The common good that would come of it: reduced driving, increased purchases of fuel-efficient cars, revenue that could be used for improved public transportation. Who would benefit: everyone in the state, but especially those in areas served by public transit. Who would pay: only those who are contributing most to the problems of gasoline consumption.
The cost of gas isn’t just on those who drive more in their personal cars, it affects many other costs. If the pizza delivery place has to pay more for gas you pay more for pizza… and if you order take-out less frequently because of it, a local business loses business, someone might lose a job (or find it harder to get one), the city gets less tax revenue from local business, so property taxes on residential property go up…
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Energy is the lubricant of the economy, and energy prices are one of the biggest sources of friction in it. They affect almost everything, with snowball effects like that. I think a high gas tax is a rather ham-handed way of dealing with the problem.
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Higher fuel efficiency is definitely the way to go. And to the extent that gas taxes help propel people to buy more fuel efficient cars, trucks, and buses, it does a good thing. But think of the goal, and consider whether there are better designed taxes or other policies that could provide a similar push without throwing as much sand into the entire economy.