Sunday, March 13, 2011

Time for Flat-Price Gasoline: $4/gallon, 24/7/365 (Dec. 19, 2006)

[Pre-Script: Probably should say $6 today. It's $3.69/gallon as I copy this, Mar. 13, 2011.]

Current mood: thoughtful

Yeah, you read that right, four bucks a gallon, tomorrow if we could do it at all, but I am not talking about an inflexible $1.50/gallon tax. (Gasoline is about $2.50/gallon as I write this.) This is a tax that would flex up and down daily with politics, weather, spill disasters, regional variations, and whatever else causes the price of fuel to wander all over between $2.01 and $3.51/gallon, so that gas is always $4/gallon, no matter what, and no matter where you are.

The tax money would go -- exclusively -- to paying down the $8.6 Trillion national debt. [March 2011 update: about $14 trillion.] The interest alone on that debt costs every U.S. citizen over $1,000/year, separate and distinct from any federal spending on anything. [2011 link update: interest here, population here; as of March 13, 2011, it's $1,331.14/person, based on FY2010 interest.]

As with everything, the devil is in the details, but one thing needs to be made clear: The tax would go down as pressure rises to raise prices, and go up as the pressure reduces. It would need to be assessed both at point of supply (tanker from overseas, pipeline across border, or well-head here) and point of sale (retail gasoline, wholesale suppliers to fleets, etc.). If you want to think of it either as the federal government controlling prices, or nationalizing the oil industry, I really don't care, but I am advocating neither approach. All I want to see is an unchanging price and a variable tax, with the funds paying down the national debt and not a cent toward the federal budget. As it stands, debt service makes up somewhere near 10% of the current budget. Eliminating that debt will thus eventually reduce all other federal taxes by somewhere near 10%, assuming all else stays the same.

Over the space of 20-some years, the national debt will be paid down. As this occurs, phase out the tax. However, over the next couple of decades, the world oil supply will begin to dwindle, which in turn will drive up the price of crude on a permanent basis. As this occurs, the tax will need to rise inflexibly, irrespective of debt retirement.

A formula would need to be determined for how often a change to the base tax should be considered, and for how much. As a rough figure, I would say no more often than every three months, and then only in increments of 10 cents in either direction. As a model, think of the Federal Reserve meeting quarterly to determine whether to change the Prime Interest Rate. They do this to control the flow of money, and to constrain the possibility of inflation.

Oil reaches refiners according to futures contracts. When you hear about Sweet Light Crude selling for $62.07/barrel, the phrase often left off is "for delivery on [future date here]", usually about four to eight weeks out. I won't attempt to explain the futures market system here. Just accept that the contracts would all be bought by the federal bureau, and the product sold back to the refining system at the much higher, but flat, rate.

Similarly, the refined product would be subject to price controls at the end-user level. The product would be universally available to the retailers, but at a federally-mandated fixed minimum price, with that tax varying daily. I'm loath to get too specific on the mechanics here, the point being that I want to eliminate panic-driven price rises. Gas is $4/gallon, regardless.

Why $4? Well, why not? We lived through the post-Katrina price spike in September 2005, and aside from the screaming, there was no real serious shortage, and no significant change in consumption. Of course, anyone who cared to pay attention noticed that the oil companies' profits were unbelievably large, far out of proportion to a fixed profit margin on a product with a changing raw cost.

Whatever price it is, we get used to it. We always have. I can remember 30-cent gas in the 1960s, and drove on 50-cent gas in the 1970s. Its price has always been irrelevant to daily life, though without exception we scream when it rises. Making it $4 eliminates all screaming in one fell swoop. Scream once, scream loudly, and get it over with.

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