Scenes From the Gas-Price Hike, Part II

Chatterbox just filled up his Taurus wagon with Amoco lead-free silver. The price was $1.65 per gallon, including taxes. Once again, Chatterbox winced. But does $1.65 per gallon really cover the cost? Chatterbox doesn’t mean the cost to the oil producers and refiners and distributors. (They appear to be well taken care of.)  Chatterbox means the cost to everyone else. In other words: Are the taxes on gasoline high enough?

We take for our text the American Petroleum Institute’s pamphlet “How Much We Pay for Gasoline.” As you would expect from a petroleum-industry publication, it contains a certain amount of bellyaching about the amount taxes add to the price of gasoline:

In 1999 the taxes collected on a gallon of gasoline amounted to 43.5 cents, including 18.4 cents per gallon in federal taxes, 23.1 cents per gallon in weighted average state taxes, and an estimated 2.0 cents per gallon in local taxes. In comparison, in 1981, when real pump prices reached a new high, taxes were just 30.1 cents per gallon. A large part of this tax increase can be attributed to federal taxes, which rose more than twice as much as state taxes. Moreover, much of the federal increase was dedicated to federal deficit reduction.

OK: 43.5 cents per gallon is what society charges Chatterbox for the roads his Taurus drives on, the pollutants his Taurus pumps into the atmosphere, and whatever incremental increase in road congestion Chatterbox’s Taurus wagon is responsible for. Does that cover it? Not according to  Richard K. Green, associate professor at the University of Wisconsin’s business school. (Close readers of this column will recall that Chatterbox cited some of Green’s data in an earlier item about whether owning a house makes you a better citizen. Since then, we’ve been corresponding on a variety of subjects, including this one.)

According to Green, if Chatterbox were pulling his own weight, he would pay not 43 cents tax per gallon of gasoline but a dollar. Here is how Green explained his methodology: 

1) According to the Texas Transportation Institute, in 1993 congestion in Milwaukee cost around $260 per driver (in wasted fuel and time).2) According to the National Safety Council, the total cost of vehicle accidents in the United States was $176 billion. There are around 170 million vehicles (cars and trucks) used each day, so costs are about $1,000 per vehicle per year. To the extent these costs are insured, they are internalized. I arbitrarily put the uninsured costs at 10 percent, or $100 per vehicle. (I have been trying, without luck, to find a good number for uninsured costs.)3) Environmental groups put the cost of auto emissions at $53 billion per year, or $311 per vehicle (based on the 170 million number).There is a debate about whether gas taxes cover the full cost of roads and highways–I’m going to leave that one alone.Summing the three numbers above, I get uninternalized social costs of $671 per car per year. Assume an average driver drives 15,000 miles and that average mileage is 25 mpg, and you find that the extra cost per gallon needed is($671 x 25m/g)/15,000m = $1.12

Since “this is obviously not a precise estimate,” Green writes, he rounded it to a dollar per gallon. Green says it’s possible that he slightly overstated the pollution costs, and it’s also possible he slightly understated highway construction and repair costs, “but I do know that we are not now paying remotely what we should for gasoline.”