Minnesota is gassy

nyt_gas.JPGI do not pretend to understand the gasoline economy when it comes to Minnesota and the world. I’m just listening and trying to sort it all out.

I’ve heard that by inflation’s standard, gasoline is relatively cheap. I’ve heard that oil companies make exorbitant profits. I’ve heard oil companies make big profits because they make big investments in research and risk and are just plain big companies. I’ve heard oil markets are controlled by Middle East interests and secret societies. I’ve heard arguments about war for oil. I’ve heard oil companies pay billions to our government in taxes every year and arguments for drilling off-coast and in ANWR a way to increase oil supply.

Lots of conflicting viewpoints and philosophies, really.

Now I’m hearing about states suspending gas taxes for the summer to help the economy, and I would appreciate your thoughts on the matter.

According to the NYT:

…state gas taxes, which run as high as 45.5 cents a gallon, often add far more to the price of gas than the 18.4-cent federal excise tax and are the primary cause of price disparities across state lines. So lawmakers and candidates at the state level have been getting into the act…The New York plan, sponsored by Republicans in the State Senate, would suspend three state gas taxes, amounting to about 32 cents per gallon, from Memorial Day to Labor Day.

The Florida plan would create a tax holiday around July 4, cutting 10 cents per gallon off the 33.2 cents in total state gas taxes.

Meanwhile Minnesota just recently raised our gas tax by 5.5 cents per gallon (phased in through October) amidst a swarm of debate, emotion and fear-mongering (mostly about paying for bridges without thought of trimming pork projects). The NYT piece shows a gas holiday for the summer would save the average Minnesota driver less than $50 for the entire summer. That won’t even get two adults into Valley Fair.

It seems like we as a society continue to think in the short term and talk out of both sides of our mouths when it comes to fiscal responsibility and taxes. Here’s a piece from the Hartford Courant that address this way of thinking:

Any 9-year-old understands that paying less for something is a nice thing, but most adults know it is not always the smart thing to do. Suspending the gas tax would cause consumption to go up, which in turn would cause oil prices to go up.

The Strib’s Nick Coleman is happy to pay his taxes — even says “It is an American thing,” about our responsibility to pay gas taxes.

So in a meandering way, I think I agree with everyone. I agree gas prices are too high for my personal budget. I agree it’s our responsibility to pay taxes. I agree we need to be thinking long term about prices and not be reactionary — heck, I don’t even remember to keep 5 cent/gallon coupons.

I suppose the disconnect for me (as only a five year MN resident, mind you) is why the gas taxes in Minnesota were raised when all these other states are looking for gas tax relief and if ~$50/summer is really enough reason to bother for any state.

Of course, the gas tax increase is a done deal now, but I wish every time the local news does a story on the gas taxes (one local station seems to do a segment on each 10 o’clock newscast), they would subtract the new taxes just to make it fair to our fellow gassy states.

5 Comments so far

  1. Jim H (minn_jim) on May 6th, 2008 @ 10:45 pm

    Abruptly eliminating the gas tax will probably not save the full amount for drivers. What happens is that the price reduction drives up demand which, you guessed it, drives up prices. There are only two ways to reduce the price of gas: increase supply or reduce demand.

    Biofuels are not presently a sustainable or sane way to try to increase supply. The amount of acreage that would have to be converted to biofuel production to substantially influence supply is staggering. The other way to increase supply is to get more oil. The bulk of the oil reserves in the US are off-limits due to environmental legislation. The bulk of the remaining oil reserves in the world are controlled by state monopolies that are enjoying their record returns. Many of these governments are not spending this oil money to increase or sustain production — they are using it for other political ends. Consequently, the short term prospects for increasing supply look limited (though for political reasons, not because of lack of reserves).

    Reducing demand is going to be driven most quickly and cleanly with higher prices. You can already see it in the fact that people are changing their behaviors in response to increasing prices. That’s what creates all of the complaining: change is good when it is forced on someone else. However, oil is a global market and India and China are increasing their demands for oil. This means that a decrease in US consumption is offset by the growing economies abroad consuming more oil.

    Summary: higher oil prices are probably here for the next couple years. Eventually demand will taper (perhaps due to economic troubles) and new production capacity will come on line. In the mean time, we will have to make changes to how we consume gas or make sacrifices in other areas of our lives to continue on in the same fashion.


  2. Erica M (ericam) on May 7th, 2008 @ 8:27 am

    From the NYT article, this is the part that concerns me:

    When Illinois and Indiana suspended about 7 cents of their state gas taxes in the summer of 2000, prices fell by an average of only 4 cents… Drivers saved no more than $2.50 a month, while each state lost tens of millions of dollars in tax revenue.

    A gas tax holiday is going to be about as useful (for its intended purpose) as this stupid stimulus check. Actually it’s going to be less useful.


  3. JasonT (minn_jasont) on May 7th, 2008 @ 9:10 am

    Buy scooters!


  4. richg on May 7th, 2008 @ 1:48 pm

    Or motorcycles.

    Bottom line, the gas tax holiday is pandering, and won’t actually help ease the pain. Minnesota actually has one of the lower gas taxes in the nation, even with the increase.

    And as for why the legislature increased it, I think maybe, just maybe, they felt like they wanted to do a few transportation infrastructure projects with the money. Maybe fix a few bridges or something wacky like that. And since one of the few taxes dedicated to transportation spending hadn’t been upped in a couple decades, it seemed like a good idea at the time.



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