Permanent Gas Tax Vacation

Were it not for a certain friend, I'm not sure this blog would still be funct. While I do get feedback from various people here and there, she is the only one who actively encourages me to write. A few nights ago, I had some spare time that I should have been spending washing dishes, but didn't want to. I thought about writing something to this blog, but nothing came to mind. I mentioned this to my friend, who suggested I write on the gas tax holiday. I had seen this phrase bandied about on the internet, but I didn't know what it was despite a small effort to figure out what was meant. She filled me in. The idea is that taxes on gas would be lowered during the summer months when demand for gasoline is at its peak. I assume the purpose of lowering taxes would be to make summer vacations more affordable, because you can only enjoy vacation if you've driven your car really far away from home (just ask the people who come to your hometown for holidays). But having learned about this policy only at the moment at which it was suggested I blog about it, I didn't think I'd have anything more to offer than what had already been written by those who were following it more closely, so I asked her what she wanted me to write. She suggested I write a Canadian perspective on the issue. I still didn't think that I had much to offer, other than the fact that I am a Canadian offering my perspective. Here is what I concluded: it doesn't seem like a good idea. I can't say precisely why. Or even approximately. Of course, everyone likes to pay less for anything, and lowering taxes is one way to acheive that, though I'm not sure that it effective it would be in the long run. Our Prime Minister doesn't think it would be (and that, my friends, is what makes it a Canadian perspective. The Canadian government told us so). It just doesn't strike me as good policy. My opinion on the matter seems to agree with that of actual economists (I guess that includes the Prime Minister, since he has a master's degree in economics), so I'll leave it up to them to justify my mine.

Besides, if you actually convert gallons to litres, and American currency to Canadian currency (or vice versa), and then dig deeper [1] to see why the prices are so different, you would see that the greatest source of the discrepancy is the amount of taxes that Canadians pay on gasoline. So compared to Canada, every day is a gas tax holiday in the US.

Meanwhile, as American presidential candidates discuss lowering gas taxes, one provincial government and at least one Canadian prime-ministerial hopeful is proposing just the opposite. Starting July 1, British Columbians will be paying 2.4 cents extra per litre on a myriad of fossil fuels, which will gradually increase to 7.2 cents in 2012. Stephane Dion says he's going to propose the same type of policy federally. Dion says a lot of things though. The gas tax is supposed to be revenue neutral in both jurisdictions, so that as taxes on gas are increasing, income taxes will decrease and, on average, the governments collect the same amount of taxes per person, but with a heavier burden being paid by heavier carbon consumers. While the Liberals of BC and of Canada want to tax consumers directly, the federal New Democrat and Conservative Parties are proposing to tax corporations instead. It doesn't surprise me to hear this from the NDP. They (or perhaps it's their supporters) have hardly been shy about their anti-corporate sentiment in the past. I'm not sure why the Conservative Party would go this route, though. I guess they can't copy their competitors, even though a revenue neutral gas tax seems more consistent with their rhetoric of free-market solutions to carbon emissions. Not only that, but it would be inconsistent with their 2% lowering of the GST (why reduce one kind of sales [2] tax only to hit us with another?).

Presumably, paying more tax on gas would lead consumers to use less of it. Or want to. We really don't like to pay taxes, and despite the convenience offered to us by automobiles and home heating and cooling, we don't like paying for gas. Paying taxes on gas just multiplies the unpleasantness. The desire to pay less for gasoline would then lead to a demand for products that use less gas, which would ultimately lead to the evil corporations producing such products. At least that's how I understand it. Of course, it is possible that taxing corporations would have the same net effect, except that it's easier for corporations to get around such measures (a little tidbit I picked up from an econ grad student earlier today). There are probably many factors at play here, and I can think of a few other things that might be relevant, but I'm an armchair economist at best [3] so I'll keep my analysis short. There may be some resulting unintended consequence to higher taxes on fossil fuel in exchange for lower income taxes, but based on the expert opinions I've heard over the last few years on taxation in general, the Liberal policy makes more sense [4].

Perhaps I'm just being selfish, however. I own a car, but I don't drive it much, and now that I'm not a student anymore, I'm no longer protected by the government from paying income tax. Under Dion's plan, I could stand to gain.

[1] These days, a breakdown of the price per litre is given on the receipt or displayed on the gas pump at many gas stations, so you don't need to dig that deep.

[2] Technically speaking either the GST or the gas tax, or both, might not be sales taxes, but rather a value added tax and a Pigovian tax respectively. Taxes are complicated.

[3] Really. I'm sitting in an armchair as I write this.

[4] First I endorse an NDP MP's plan to abolish the penny. Now I endorse a Liberal tax policy. Have I changed my political persuasions? Doubtful that it's me who has changed.