Gas Tax Dilemmas

GAS TAXES: The US's Dilemma

The reasons behind imposing a tax

Taxes are is money collected by a government from businesses or individuals directly or indirectly against services provided to the community. They are important sources of revenue for the government, therefore everybody is obliged by law to pay taxes. If we want to stay in certain country, it is necessary for us to pay tax.

All services provided by governments in both levels (local and central) such as health care, building roads, water supply, police, firefighters, judiciary system, education, defense …etc. are financed by the tax money.

Taxes also pay the salary of all government employees. The cost of running the government, such as buildings, utilities, research, equipment

In USA the revenues from gas taxes are used in many ways, for example, to reduce budget deficits, to decrease existing marginal tax rates (the rates on an additional dollar of income), or to offset the costs that gas tax would impose on certain groups of people.

Raising the cost of using gas by imposing tax would increase the cost of producing goods and services such as electricity and transportation.

Sometimes gas tax may have a negative effect on the economy. High price of goods and services can diminish the purchasing power of earnings of people and reduce their real wages, which would have an effect of reducing the amount of hours worked or goods produced by people, and therefore, decreasing the overall supply of labor, amount of money invested, further reducing total output of the country's economy.

In USA taxes raised from taxing gas are also used to offset or reduce some of the negative economic effects of other taxes, for example, to reduce the existing marginal rates of income or payroll taxes, which would have positive effects on the

In the U.S., the tax on a gallon of gas in 1950 was approximately 1.5% of the price. In 2011, the federal, state and local tax on a gallon of gasoline was approximately 20% of the total price. This means that taxes added about 48% to the price increase in a gallon of gas.

Gas tax and interest rate

It is believed that there is some relation between gas prices and interest rates. Increasing interest rates raise cost of goods and services, which, in turn, reduces the amount of time and money people spend driving. Less people on roads means less demand for oil, which can cause both tax rate and oil prices to drop.

On the other hand, when interest rates drop, people will be able to borrow and spend more money, which increases demand for oil. High demand for gasoline means high tax can be imposed by the government.

Gas tax and environment

A higher price of gas can encourage firms and consumers to develop more efficient engines or alternatives to consuming fuel ( hydrogen engines or solar power), encourage more people to cycle or walk to work, which would have health benefits, to generate electricity from green