Wednesday, August 31, 2005

High Gas Prices Have Few Acceptable Remedies

Gas prices this morning in Charleston, West VirginiaIn case you have not heard the news, $3+ per gallon gasoline arrived in West Virginia this morning--$3.099 to be exact. Given the loss of oil production in the Gulf of Mexico and the loss of an estimated eight refineries, this was inevitable. The most painful aspect of this situation is the lack of an appropriate short-term fix and the longstanding neglect of the long-term efforts that could have mitigated this situation and which still need to be done to prevent future economic harm.

For the most part, my comments on gas prices have been generally restrained. As a free market capitalist, I am loath to even considering "solutions" that will do nothing to fix the problem and which will most likely exacerbate it.

Price Controls

Speed Limit 55No! No! No! We tinkered with this idea in the 1970s and all we got for it were gas lines, odd/even days, and a 55 mph national speed limit that became a joke to most people and compliance with which would put a person to sleep behind the wheel.

Hawaii is embarking upon this experiment again but I expect the Aloha State will quickly say "Aloha!" to the availability of fuel at all gas stations.

Gas Taxes

This section is particular to West Virginia but can be applied in most other states. Full or partial suspensions of gas taxes are a gimmick and do not resolve any of the underlying issues that have tripled the price at the pump over the last 6 years.

Article VI, Section 52 of the West Virginia Constitution requires that all gas taxes, registration fees, and other motor vehicle-related state taxes and fees be deposited in the State Road Fund and is used only for highways. Many other states have a variation of this firewall between the highway & general revenue funds. Presently, West Virginia's state gas tax is 27 cents per gallon, consisting of a flat rate of 20.5 cents per gallon plus a variable rate of 5 percent of the average wholesale price of gasoline in the months of July through October of the prior year. The flat rate was last adjusted in 1993 and would presently be worth 27.75 cents if it was indexed for inflation (click here for direct link to inflation calculator). The variable rate debuted in 1983 at a rate of 4.85 cents per gallon and did not change until 2002, when it increases to 5.15 cents per gallon and then to 6.5 cents per gallon last year. The variable rate will probably increase by several cents per gallon next year (and will finally increase, adjusted for inflation, to its original 1983 level).

In West Virginia's neighboring states, state gas taxes range from a low of 16 cents per gallon in Kentucky to 30 cents per gallon in Pennsylvania. The tax in Virginia is 17.5 cents, Maryland is 23.5 cents, and Ohio is 28 cents. Unlike our neighboring states, West Virginia is still building new, toll-free roads through difficult terrain and provides full maintenance of all roads, including local roads in unincorporated areas. Maryland and Virginia are planning their new road projects as toll roads. Kentucky has reached the end of its existing road-building plans and does a poor job of winter snow removal (which often closes schools for weeks in the mountain counties). Pennsylvania, despite its high gas tax, is not only building new toll-free roads but is also building toll roads and requires local governments to pay for local road maintenance (which is funded by high property taxes).

While I believe West Virginians need significant tax relief regardless of the price of gas, the gas tax is not the best option. We would be far better off if we would abolish the food tax, reduce the business franchise tax, increase the personal exemption from the state income tax from $2,000 to $5,000 per exemption to exempt income up to the federal poverty level from taxation, and index for inflation the personal exemption & marginal rates of the state income tax (which were last adjusted in 1987). Maybe--just maybe--the folks in the legislative leadership could allow bills that have been introduced by several Republican legislators to implement the comprehensive reform of the state's tax code proposed by Governor Underwood's Commission on Fair Taxation, to see the light of day. This year's versions of that bill were SB 188 (Weeks & Yoder) and HB 2445 (Sumner, Sobonya, Wakim, Frich, Schoen & Ellem).

Produce More Oil

Our only escape from sky-high gas prices in the future is to resolve the supply-demand imbalance by increase supply. Not only has the share of domestic consumption of imported oil doubled in the last 30 years, but our foreign sources are now being strained by increased demand from India and China.

Several promising domestic oilfields' development is prohibited by federal law. The tree huggers, assisted by the Senate's filibuster rule, have blocked drilling for oil in Alaska's Arctic National Wildlife Refuge--even though 75% of Alaskans support it and current technology would require a area the size of a major metropolitan airport to drill for oil in an area the size of the state of South Carolina. The area proposed for drilling is not the pristine fields of green depicted (which are located in areas of ANWR far away from the drilling sites) by the left but a barren wasteland. Even the Bush Administration has caved to factually unfounded opposition to drilling offshore in Florida, California, the east coast, and the Great Lakes. Most oil rigs wouldn't be visible from the shore and don't pose an appreciable risk of environmental disaster even when hit by a Category 5 hurricane. As a frequent Florida Gulf Coast vacationer, I have no objection to drilling for oil there or any other place where it can be found and extracted without creating real environmental harm.

We also need new refineries and pipelines. Despite the President releasing oil from the Strategic Petroleum Reserve, we still face a massive loss of refineries in Louisiana and need additional refining capacity elsewhere to reduce the risks associated with the concentration of refineries in one area. Moreover, increased oil production will be of little use if we cannot convert crude oil into gasoline, diesel, jet fuel, kerosene, etc.

One of the responsibilities of being the party in power in Washington is facing the fallout of any crisis that grips the nation. Republicans in the Senate (since the House of Representatives is already on board) must grow a spine and return anti-drilling senators like McCain & DeWine to the reservation. We either must enact our program to increase production, cave to the leftists and impose the failed policies of the 1970s again, or do nothing and risk the fallout from doing nothing.