Market economies work best when they rely on accurate prices. Yet many of the prices we pay do not reflect the full costs of producing, using and disposing the goods we consume. The most important example of this mismatch may occur in the transportation sector.
For 22 years ILSR has worked to build strong and environmentally sound economies. One practical tool for moving us in this direction is to get the prices right. It is in that spirit that we offer this study.
The United States has by far the lowest gasoline prices among industrialized countries, and the few brave politicians who have tried to raise gas taxes quickly felt the anger of their constituents. Yet the price we pay at the pump for gasoline and diesel bears little relationship to the real cost of driving.
This is true even in the narrowest sense. Many of us believe our transportation system is a pay-as-you go proposition, that motor vehicle fees and gas taxes fully cover the cost of the roads upon which we drive. But as John Bailey points out in his well-documented ILSR report, Making the Car Pay Its Way, the costs of maintaining local roads in Minneapolis largely comes not from transportation taxes but from property taxes. If we were to shift this burden onto drivers and off of property owners, motorists would have to pay 18 cents more a gallon.
Many other quantifiable costs are unaccounted for in the price we pay at the pump. To determine these costs, the Institute for Local Self-Reliance asked Dr. Jenny Wahl to review the existing literature on the subject. Dr. Wahl is a most fitting person to undertake this task. She is one of the nation's eminent tax analysts and economists. An Associate Professor of Economics at Saint Olaf College in Northfield, Minnesota, Dr. Wahl has worked in the U.S. Treasury Department's Office of Tax Analysis and is a member of the Star Tribune's Board of Economists.
Dr. Wahl's conclusion--that if we eliminated the tax, environmental and military subsidies for gasoline, the price at the pump could rise by 32 cents a gallon--we think is not only defensible but very conservative. For example, this report gives very little weight to the potential costs of global warming.
Based on this study, Minnesotans subsidize the oil industry by over $700 million a year. These subsidies have the perverse effect of artificially lowering the price of gasoline. This encourages driving and increases pollution while slowing the development of alternatives such as more efficient vehicles or non-petroleum fuels.
Dr. David Morris
Vice President