Libertarian Jackass

"Life is short, but truth works far and lives long; let us speak truth." -- Schopenhauer

Monday, April 05, 2004

A GAS TAX

In response to a comment here on a gas tax, a reader writes:
Let me get this straight: if I am paying $2.25 per gallon at the pump, I am nevertheless going to be happy with Kerry for cutting gas costs .20 before increasing the tax by .50? Entitled to your opinion, but I can't see that I would care what percentage of my $2.25 goes to taxes versus the cost of the gas itself.
The short answer: My point was that even if Kerry raises the gas tax $.30, this does not necessarily mean we will see a higher market price for gas. The long answer: If you are paying $2.25/gallon for gas and John Kerry decides to slap on a $.30 tax to fund the war effort, the producer can't simply charge $2.55 for gas and pass the tax forward to the consumer. Instead, the tax is shifted backward to the line of production, where firms on the margin in the industry will have to add the tax to costs add/or be driven out of the industry. This reduction in stock will tend to raise the selling price (regardless of the elasticity of demand) of the final product, gas, for consumers. Ultimately, it is the market price that determines the cost of production. It is impossible to say, then, that portion a) goes to the "cost" of gas and portion b) goes to the tax. In addition to the tax, other regulations also tend to reduce to stock of production goods available. While, of course, an increase in the tax, would tend to raise the price of gas compared to what it would otherwise be, the market price of gasoline could still actually fall! My problem was with blaming higher gas prices on Kerry as a political ploy. It simply cannot be proven. House review outdoors

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