the cost of doing business

The US consumes about 385 million gallons of motor gasoline per day

That is about a gallon and a bit per day per person.

Or 140 billion gallons per year.

Coincidentally, the off-budget cost of the war in Iraq is roughly $70 billion per year. Approximately.

Or $0.50 per gallon.

We should probably pay for this war, cash. I think the credit is about maxed out any month now.
Trick is how to do that...

Now, 50 cents per gallon won't really pay for the cost of the war, only the marginal cost.
Probably need $1 per gallon in the long run to pay the cumulative additional cost.
If it is not done through a gas consumption tax, then it will come out some other way, through higher income tax, higher corporate tax, or higher interest rates.

Real shame is that the US could have done a slow ramp up of a federal gas tax when prices were low, paid down some debt (effectively), kinda done a pre-payment plan.
If only Clinton had had the courage to do this. Not gonna be popular to try it now.

Ultimately though it, or something equivalent has to be done.

Oh, interestingly the little price fluctuations over the last 18 months suggest that the US economy would do just fine with an extra 50 cent per gallon cost, although it is not exactly the most progressive of taxes. Maybe some progressive income tax changes could be made in compensation.
There would also be the social benefit of putting a premium on conservation and fuel efficiency, and incidentally lower carbon emission.

Be nice to have some way to get a win out of the situation.

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Well I think we are paying the $.50 per gallon as it is. The Iraq war has kept (for the most part) Iraqi oil off the market, and helped maintain the fear-premium on oil prices. Of course instead of the money going to the treasury, its gone mainly to the oil exporting countries, and the large oil companies. So yes we are paying, but none of it is going to pay down the liability.

Steinn, you are being silly. The best way for the government to raise revenue is to cut taxes, not raise them. Everyone knows this, at least, everyone in the highest tax brackets.

By Brad Holden (not verified) on 28 Nov 2006 #permalink

yeah, price stability is useful in this regard - even if undergrad economists want to argue that it murkies market signals...
a significant gas tax reduces volatility in that it reduces fractional price variation to the consumer even if wholesale oil prices vary strongly, in principle you can even damp swings to consumers by doing some adjustments in tax in response to prices, although if you do that too much you really do start to damage long term economic considerations by disguising the market signals.

The nice thing about cutting taxes is that not only do those of us with large enough incomes get a much deserved break, we also get to earn more money lending it back to the government. Win-win, eh?

Now if we could only explain to economists that the Fundamental Theorems of Calculus only prove the existence of a maximum, not that it is unique or global, nor where it is.