More Gas Taxes? Why Not?

oil refinery

We know how you much you gurus love tax increases, especially when it comes to activities that impinge on cherished freedoms like driving your high-powered, high-consumption Camaros and Mustangs. Well, get ready to pay more for those freedoms, because higher gas taxes are coming. It’s inevitable, because gas has been artificially low for many years – pegged, if you will – and the time to pay the piper is almost here.

There are two reasons for this—the country’s short-term and long-term needs. First is the necessity for federal highway funding. The system has been short-changed for a long time, and the condition of the country’s roads, bridges, and tunnels is scandalous. The present 18.4-cents-per-gallon gas tax is inadequate to fund even present maintenance levels. Sen. Richard Durbin (D, Ill.) has put the handwriting on the wall. A new highway bill will be adopted, possibly by spring of next year. Somebody has to pay for it.

States like West Virginia are considering imposing their own gas taxes, as their infrastructure crumbles. With the economy stumbling and people driving less, gas tax revenues have declined everywhere. Plus, revenues get reduced as more fuel-efficient vehicles take to the road.

Which leads to the other, equally powerful, long-term exigency: The government must support in some fashion the electrification of the car industry and the infrastructure to serve it—or that brave new world simply won’t happen. There has been much written on how federal government should or should not fund industrial policy, but without it you can kiss oil independence and a clean environment goodbye.

Chevy Volt UnskinnedA lengthy, interesting, and mostly convincing article in Inc. explains how the Chevy Volt (unskinned, above) and other EVs represent “connected vehicles,” cars built on a principle of networked systems requiring a new way of conceiving and building automobiles. Vertical integration, the industry’s traditional pyramid approach, is fast disappearing.

Today, however, car companies look less like pyramids and more like hubs and spokes connecting product teams: teams networked across the globe to one another and to myriad suppliers, a little like open-source software designers.

Makers of EVs will not only require new components, both hardware and software, but will need to face the enormous challenges of developing energy distribution and the grid. At the same time, there is and will be an explosion of great business opportunities. The future belongs to those who can network these new opportunities.

The auto industry will never again be a land of giants like GM but a landscape of small-business innovators. And it will be the government’s business to encourage and support these efforts at the outset. Funds will come from your pocket, once again, and higher gas taxes (in some form) are surely in your future.

Are you ready to pay higher gas taxes next year? Why or why not?

—jgoods

9 Comments

  1. Had you cited the Washington Times, I might think you would be a bit more balanced in your “research”. Citing the Post or the NY Times on economic, environmental and social issues leaves me quite indifferent. I thought my attempts to “moderate” your views to encompass a more “balanced” approach to your incessant ramblings about energy policy and other issues have not been as successful as I would have hoped.

    Since you are in my age grouping I would have thought that the days of wine and roses would be in the rear view mirror, but alas, you still seem reluctant to give up the pipe. Although you may not still have the beard and long hair, you still seem to be carrying the protest signs with your views on policy decisions that incur a great cost to the public.

    I saw the piece about the proposed gas tax increase as well as a personal income tax of one to five percent on all people who have an income. I suppose that living in Mexico might have some influence on your apparent indifference to the pains imposed on us by Washington. If you were living here, I would bet that your views might be modified.

    The point that I always try to make is that there is a cost to be paid for all these grandiose schemes to do this or do that. I try to use a cost-benefit analysis of the “issue” at hand and try to make my judgment on that issue based on that analysis. Apparently you don’t put much faith in that approach since most of your ranting on energy issues conveniently ignores the cost of your proposed solutions. Somebody has to pay for those “solutions” and it seems as though every solution is based on passing on the cost to the unwary consumer. I am just baffled why a smart guy like you misses that point.

  2. @panayoti
    Yes, Mr. P., we do get notified when a comment is posted, so you can rest assured we can and will continue the discussion. At least when we think it’s warranted!

    I’ve read some of the hoopla about vertical integration being revived and honestly I think it’s a misnomer for what is happening. In the auto business, as your excerpt admits, it’s “more by default than choice” because companies simply need to secure their supply chains. The same seems true in other industries, e.g. aviation. Otherwise, why in the world would GM come back to rescue Delphi, whose troubled history would keep any sane buyer, including its former owner, away?

    As to the flamboyant Mr. Ellison, I think his latest venture with Sun will end up deconstructing his company, but what do I know? See http://online.wsj.com/article/SB125954262100968855.html?mod=rss_Today%27s_Most_Popular. There are good reasons for companies to integrate vertically with some suppliers, but the long-term trend to get us into cleaner, more efficient vehicles can’t be the old vertical model; it has to be something like the hub-and-spokes system Bernard Avishai described (in the Inc. article I referenced). I don’t see how the old economic models can get us there.

    Finally, since we started all this as a discussion on gas taxes, I think you will be interested to note that the Washington Post today endorsed raising the federal gas tax to pay for our new escalation in Afghanistan. I will have more to say about this in my Green Update column today, and I invite your comments.

  3. @jgoods
    Hello jgoods! Don’t know if you get notified when you receive responses on older entries, but since you guys don’t post email addresses to reach you, I thought I would this anyhow. This is from an Edmund’s piece today, Nov. 30.

    Back to the Future: Companies Go Vertical — Again
    November 30, 2009

    Forward-thinking Larry Ellison, CEO of Oracle Corp., recently told financial analysts he is taking a page from history past in creating a new business model for the high-tech company. Oracle is going vertical.

    And Ellison is not alone in turning back to the century-old vertical integration strategy whereby a company controls materials, manufacturing and distribution, according to a story on the trend in Monday’s Wall Street Journal.

    Other companies, including General Motors and Boeing from which Ford CEO Alan Mulally came, are as well.

    Don’t expect the auto industry to return to the days of when Henry Ford not only built the cars but owned the iron-ore mines, the steel mills, the glass factories and the rubber plantations for tires, the experts say. Instead, expect automakers and big parts companies to outright purchase or buy stakes in makers of major components.

    Indeed, GM has returned to vertical integration, in part, to make sure it has the quality and steady stream of parts it needs. But the move is more by default than choice. In October, GM took a minority stake in troubled Delphi Corp., its largest created by the spin-off of former GM parts operations, after four years in bankruptcy. GM also took back four factories and Delphi’s steering business to get it out of bankruptcy and to assure an uninterrupted supply of critical parts.

    Similarly, Johnson Controls, a major parts maker and one of the world’s largest suppliers of car seats, took a 70-percent stake in bankrupt supplier Plastech Engineered Products Inc., to guarantee supply of parts.

    Several steelmakers are also embracing the shift, moving deeper into the raw-materials business that earlier steel companies exited, the paper reported.

    “The pendulum has shifted from disintegration to integration,” Harold Sirkin, global head of the Boston Consulting Group’s operations practice, told the Wall Street Journal. He attributes the change to volatile commodity prices, financial pressures at suppliers and quests for new revenue — challenges exacerbated by the recession.

    This might be good fodder for further “discussion”

  4. @panayoti
    Hola Panayoti! Greetings from Mexico, preeminent land of entrepreneurial capitalism. Just look at the number of “small business” beggars and short-sellers we have on the streets! Thanks for your thoughtful comments, once again.

    I think we actually agree on a number of things—maybe even on incentives (“a necessary evil,” you say). My point about France and Germany was that even with high taxes (much higher than ours), their auto industries are booming, and their governments have provided big incentives to get the new technologies going. The high taxes are the price their citizens are apparently willing to pay for economic and social benefits for all. There are plenty of problems in Germany, but their auto industry right now is the envy of the world.

    The capitalist model works in Germany—yes, with regulation and all the other strictures you hate—not because it operates through those evil “government planners” but because it provides economic incentives for the companies to produce the cars that the public wants and is willing to buy. What our government did with the banks was terrible, in my opinion, keeping the giant ones alive and putting the smaller ones in jeopardy. The credit and mortgage situation still is awful for most people and most businesses. The dollar gets weaker and our trade balance gets worse.

    With regard to private capital, I was trying to say that business simply has no “incentives” to invest in US autos any more. Cerberus and Chrysler were an utter disaster. The big money is going to sit this one out—would you invest in Chrysler today?—and that is the main reason the Treasury had to step in. I don’t like the fact that they now “own” much of the US auto business, but that’s better than letting it go down the tubes.

    I think things will improve. Today I’m writing a piece about GM’s improving balance sheet, which has allowed them to start paying back government loans five years ahead of time.

    But, as you say, it will take years to establish a viable EV industry here. Battery tech is only the most visible of the problems. And of course I agree that there is no free lunch. Somehow we all need to decide, through our ridiculous Congress, I guess, what we are willing to pay for.

  5. Kalimera jgoods! Apologies for my cataract ridden eyes’ failure to discern letters and for assuming that your Liberal bias presupposed your time on this planet!

    What?? $50B government largess, which will never be paid back, isn’t enough “incentive” to the former Big 2 automakers to produce cars?? Hah!!
    Yes, I despise cheap labor, outsourcing, lack of immigration policy and government intervention in the private sector. I believe that regulation, while necessary, is now a destructive force in our former capitalistic system because it destroys the “incentives” that you so love. Much as I hate and rail about incentives, they are a necessary evil to bring nascent technologies and innovations to the fore. Aarghh!

    As to “my” solutions to your questions, I think that it is quite evident that government policies regarding environment, taxes, immigration, workplace safety, privacy issues, quotas, diversity, etc, severely limit the capitalist model from working better than it can. So you think that “auto and pay” czars will be better at creating jobs than private enterprise?? Government planners will do a better job of creating new vehicles and competitive models than private enterprise?? You might answer in the affirmative but I would remind you that government is you and me and and it is we that will have to pay the bill. Given the choice of me paying, or private money paying, I would always choose the latter.

    I’m not convinced that your assembly plant vision of the future is something that will be seen in our lifetimes (since our time here is limited). I will grudgingly admit that an EV is a long term solution but one, as you suggest, that is costly and fraught with potential obstacles that would flunk cost benefit analyses for the next decade or so. One battery plant in Michigan doesn’t bode well for a domestic job creator. We are still looking to Asian suppliers for the foreseeable future. The apparent emasculation of the dollar will further cost us jobs down the line.

    I have absolutely no idea of the point you were trying to make with European taxes, other than your inference that taxes can’t be so bad over there because Europe is doing better? than we are. If that is the case I would prefer a State to which I pay one third of my income as opposed to one that I pay half.

    Prospects for a new and better car industry stateside are not a very hopeful scenario in the immediate future, largely because of what you perceive as our only hope. Government can “save” an industry short term, much like they did our banks, but a long term solution should be one in which government gets out of the way and allows private enterprise to function more independently.

    You should not perceive my individual beliefs as ascribing to Adam Smith’s version of capitalism. Never! I don’t believe in monopoly, unfettered and unschackled competition and Social Darwinism, but rather an economic model based on Constitutional tenets. I only wish that you would remember to read what Government’s functions are as spelled out in our Constitution. Please remember “there ain’t no such thing as a free lunch” and incentives are not free.

  6. @panayoti
    Hola Panayoti! I’m living in Mexico, not France, on very little money, and I love your rants and commentaries even when you go off half-cocked. BTW, I’m jgoods, not jsgoods, and far from being a “dear young scribe” as you have it, I’ve endured some 70+ years on this lonely planet. Let’s talk—because with all your bombast, we sometimes seem to agree on things like the infrastructure problem and the need for jobs.

    But where are the auto jobs going to come from when the U.S. can’t possibly produce more than 9 million cars in the foreseeable future? Without new products and new incentives the industry will be a net loser of jobs for years. You rail on about government intervention and socialism and praise the capitalist scenario, which imports the cheap labor you despise, and then you say that $4 gas caused the recession. You’ve got to be kidding, man.

    Anyway, I hear your anger but I don’t hear or see you offering any solution. Let me put some questions to you:

    1. What is the auto industry in the U.S. going to look like in 10 years? Where are the jobs going to come from?

    2. I’ve been to lots of auto plants. Toyota taught us a lesson years ago, but the future assembly plant won’t look much like today’s. You might check out the article I referred to above, http://www.inc.com/magazine/20091101/the-connected-car.html. This predicates the opposite of monopoly. Do you think we can survive without the electric car? I don’t, but it will be a long, difficult road ahead.

    3. Taxes: has government stifled business in France (I know, that’s a bad word) or Germany, where income taxes range from 14 to 45 percent, plus the VAT (Mehrwertsteuer), plus corporate rates of 30-33 percent? The German auto industry is now doing better than any other in the world and, yes, the government provides it with incentives.

    If we don’t provide capital and incentives for a new auto industry in this country, who will? Cerberus and the private sector? Come on! Finally, I’m not a tree-hugger, I’m a car-hugger, one hopeful for a new and better industry. Tell me how you think we can get there.

    Thanks for writing. We will keep stirring the pot.

  7. NO! NO! NO! Damn you jsgoods! You just know how to get my goat, don’t you?? There you go again!! I swear that you are becoming more Socialist by the minute with your incessant call to raise gas taxes. Now you say that it is inevitable. Are you writing this from France?? Did you get your degree at the Sorbonne?? Inevitable because it has been artificially low for many years?? What?? You forgot about a year and half ago when it was “artificially low” at $4.37 here in West Virginia and much higher in other states?? I berated you then for your call to raise the gas tax because of the negative impact on consumers and industry. My dear young scribe, didn’t you see a parallel in the horrible devastation to our economy caused by outrageous gasoline prices we had then?? That was the start of this recession we’re in now, not Lehman Brothers and Bear Sterns and the like.

    I do not disagree with your analysis of long term and short term needs faced by every State in the Union. Our infrastructure is exactly what you describe. It is with the solution(s) you propose that I totally disagree.
    As always, so it seems, you favor government intervention and more bureaucracy as the only answer. I favor a more capitalistic, private solution to the problem. Our businesses must stop this insane outsourcing of products and jobs to other countries (here I am in your camp). The importation of cheap labor is also killing us. Businesses must be made more accountable and the government is the chief villain here by NOT enforcing existing laws or securing our borders.

    The obvious solution to the infrastructure problem is jobs, jobs, jobs. When people have a job they pay taxes and things get done. But here is a double edged sword. When business creates jobs, the government takes too much money from them in taxes. So where is the incentive to hire Americans @ $10/hr. when they can get the same in India for $1.65??
    Your solution is to electrify the motorcar. But again you want huge government incentives to fund that effort. Again more government. If companies could make more profit, that would incentivise them to produce the electric vehicle and the infrastructure to support it.

    As to your “vertical integration is dying” scenario, again, I disagree with your premise. If you’ve ever been to an auto assembly plant all you see is workers putting pieces into and onto a chassis and a body. What is new in EV production is the means of propulsion. I don’t see the lateral integration that you refer, besides that would infer a monopoly and that is against the law. Again you are asking government to pick the winners and the losers. Why not gas or diesel powered cars? Hell, we already have subsidized Ethanol and you see what it has gotten us. No I didn’t forget that you are a tree-hugger and rabid environmentalist so I view your position with more than a jaundiced eye.

    The new guy in the chair is taking government intervention to another level which will decimate 3 generations if totally enacted. I realize that you want cap n trade, health care, and amnesty for illegals, and want us out of our two wars, but when you tell us to hold on to our wallets, are you forgetting that it is out of your wallet too and your children’s wallets that all these grandiose schemes must be paid. I know that you make big bucks here and maybe can afford all these changes, but a vast majority of Americans simply can’t afford them. It is good to stir the pot with controversial articles, but at some point you must realize that these issues affect you more than you think.

    PS Surprise! I am a registered Democrat and ashamed of what this party
    has become. And, oh by the way, keep stirring the pot.

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