Saturday, May 10, 2008

Gasoline Taxes Potpourri

For the first quarter of 2008, the average state gasoline tax is 28.6 cents per gallon, plus 18.4 cents per gallon federal tax making the total 47 cents per gallon. For diesel, the average state tax is 29.2 cents per gallon plus an additional 24.4 cents per gallon federal tax making the total 53.6 cents per gallon.
—from Motor Fuel Taxes, American Petroleum Institute

Let's do the conversion math. For gasoline, that’s a 4.86 cent/liter federal tax and a 7.56 cent/liter state tax for 12.42 cents in federal and state taxes per liter. For diesel oil, the respective figures are 6.45 cents, 7.71 cents, and 14.16 cents.

The so-called gasoline tax in Japan consists of a 5.2 yen/liter local road tax and 48.6 yen/liter volatile oil tax, for a total of 53.8 yen/liter. The “temporary” surcharge accounts for 24.3, 0.8, and 23.8 yen/liter, respectively. The light oil (i.e. diesel fuel) tax 32.1 yen/liter, of which 17.1 yen is the “temporary” surcharge.

There’s more:

You know, I think Americans would be shocked to learn that only about 60 percent of the gas tax money that they pay today actually goes into highway and bridge construction. Much of it goes in many, many other areas.
—2007 August 17; Mary Peters, U.S. Secretary of Transportation

By contrast, most of the Japanese gasoline tax money goes into the construction and maintenance of roads, including some very expensive bridges. Yes, the U.S. highway system may be going to pot. Yes, compensating Japanese landowners is expensive, and so is building against earthquakes. Still, I see a good prima facie case that Japanese roads can do without a lot of that money without risking pothole epidemics and collapsing bridges. In fact, as an American journalist said to me the other day, a few potholes here and there would have the salutary effects of showing that we weren’t overspending.

Last month, 42 of the 47 prefectural governors in Japan told Yomiuri that they wanted to maintain the surcharge, and none of the other five opposed it outright. With regard to putting the money into the general funds, only four governors supported it. On the other hand, only 11 opposed it outright. Most of them must be waiting to see how much of the money would continue to be shoveled back into their coffers and local economies before they break either way. The Tokyo governor is a strong supporter of the status quo; wealthy Tokyo has no problems in meeting the local copayment requirements for national road project and still have more than enough money to finance the rest of its own projects—roads or otherwise. Better then, to have the money spent on Tokyo roads rather than run the risk of the national government taking a bigger cut or shunting the money to the poorer prefectures. Those poorer prefectures on the other hand would benefit from string-free cash handouts as long as they didn’t lose money in the bargain.

These governors aren’t that far off from their constituents as the two-, three-to-one public opinion polls running against the maintenance of the status quo would seem to indicate. This Asahi poll shows that the 67% who supported putting the revenue into the general funds were split 44%-44% on the reinstatement of the surcharge in the event of the handover to the general funds. That’s 29% of the sample group, much higher than the 22% who support the reinstatement of the surcharge outright. Now there may be some overlap between the two numbers (I have no way of knowing unless I see the full survey results), but the results do suggest that the Japanese public by and large would support the retention of the surcharge if the government coupled it with a major overhaul of the road development program and its implementation process and a revision of the program’s place in the list of national priorities. Can the Fukuda administration and the ruling coalition do it this fall? I am increasingly skeptical.

If the Fukuda administration wants to put the road money in the general funds come fiscal year 2009, why doesn’t it just drop the 10-year extension of the pending special bill and use the money in the FY2008 road budget, which has already been passed?

Because the special bill is needed to extend special rates for subsidies that the national government doles out to local governments. Without it, the subsidy rates would revert to the lower “normal” rates, throwing local budgets out of whack.


Janne Morén said...

I've never really understood the idea that gasoline taxes should go specifically for road infrastructure. It sounds kind of connected on first glance, but it's really rather strange an idea.

Taking the idea to other areas, we'd have the consumption tax revenues all earmarked for small business promotion (gilded storefronts? Targeted Muzak system deployment in malls too poor to afford it?); food consumption taxes would all go to agriculture and import businesses. The armies of the world would quickly starve, left as they are without a corresponding tax-based revenue source (though a small cut would come from sales of "Guns and Ammo"-style magazines, and a special defence surcharge on camouflage patterns).

Hmm, not an uninteresting idea.

Jun Okumura said...

In theory, you’re right, or at least intellectually consistent, but earmarked taxes did make practical sense in the days when the revenue base and government were much smaller. Think of the government as a monopolist supplier of roads, and what you had was a very rough approximation of a universal toll road network.

Today, government is much bigger. We also have the technology to create a payment system that gives a better picture of the direct costs and benefits as well as externalities such as climate change and energy security.

If we only could design social systems from the ground up. For example, would we bother to set up a fixed-line communications system today? That’s the curse of the status quo. Look at the LDP; In success lies the seed of failure. (Path dependency?) But not necessarily the other way around.

But to push your story about the military further, why stop at current revenues? For example, you could raise and equip a shipload of, um, able-bodied men to invade the British Isles with treasury bonds backed by revenue from “earmarked taxes” to be levied on those poor bastards. Don’t worry, you’ll have the means to collect. And they won’t complain to their local MP. You don't even have to issue bonds; just tell your men to bring their own weapons and other supplies and they can collect all the “earmarked taxes” they can once they get there.

Nah, couldn’t happen, could it?

Janne Morén said...

Nah, could never happen...

But you touch on precisely why earmarked taxes are only rarely a good idea: taxes (or subsidies) almost always have more than one function to play, meaning that the optimal level of the tax, and the needed level of funds normally do not match. Gasoline taxes, for instance, have the function of reducing driving in order to reduce environmental impact, and lessen oil dependency; a tax that is strictly set according to road construction needs would probably be too low to work as an effective behavioral signal.

BTW: we most certainly would put up fixed-line systems. Bandwidth and communication speed is simply not even comparable to wireless systems (that depend on wired communications for their trunk transport, by the way). What we would skip is a phone-specific system, and just build a generic digital data communication system from the start.

Jun Okumura said...

You're right, Janne. I think that I confused fix-line with phone-specific.

I agree with you on taxes, though I'll add that taxes have consequences, some of which we recognize as their objectives and functions and others that we ignore or are simply unaware of. The Japanese gasoline taxes do not have an environmental objective, so their environmental consequences are somewhat complicated largely because they have been ignored. If they were recognized, they would properly be integrated into a carbon tax regime, and also rebalanced between gasoline and diesel fuel to address more conventional air pollution.