Some Red State/Blue State Indicia

Uh. California policy is to correct the negative externalities inherent in gasoline use by making it more expensive. That would be an example of good policy.
 
in light of the externalities associated with gasoline what is the optimal tax on it

The optimal tax on gasoline—in the economic sense of a Pigouvian (or corrective) tax that internalizes its negative externalities—depends on which externalities are included and on parameter assumptions like the social cost of carbon (SCC), congestion costs, accident risks, local air pollution damages, and fiscal interactions (e.g., how tax revenue is used).
Gasoline use creates several major externalities:
  • Climate change (CO₂ emissions): Proportional to gallons burned, so a per-gallon tax is efficient here.
  • Local air pollution (e.g., particulates, NOx): Mostly tied to fuel combustion but varies somewhat by vehicle.
  • Congestion: Primarily from miles driven, not gallons per se.
  • Accidents: Largely mileage-related.
  • Other (e.g., oil market dependence/security risks).
A pure Pigouvian tax would equal the marginal external damage per gallon. Studies often estimate a broader "optimal" (second-best) gasoline tax that accounts for these externalities, behavioral responses (e.g., reduced driving vs. more efficient vehicles), interactions with other taxes (like labor taxes), and sometimes a Ramsey component for revenue-raising efficiency given gasoline's relatively inelastic demand.
Classic and influential estimates (primarily from Ian Parry and co-authors) for the United States include:
  • Parry & Small (2005/earlier work): Around $1.01 per gallon (optimal second-best), but the pure Pigouvian component for pollution externalities was much lower (≈21 cents/gallon after subtracting non-externalities like congestion/accidents funding needs).
  • Parry (2009 update): Baseline corrective tax ≈ $1.23 per gallon (congestion ≈$0.52, accidents ≈$0.41, local pollution + global warming + oil dependence ≈$0.09–0.12 each). This could rise to ≈$1.88/gallon with higher SCC assumptions or ≈$2.01/gallon under preexisting fuel economy standards (as mileage reduction becomes more important). It falls if there's already a binding CO₂ cap-and-trade system (removing the global warming rationale).
  • More recent work (various 2020s studies) often pushes higher when incorporating updated SCC values (now frequently $50–$200+/ton CO₂, translating to 50 cents–$2+/gallon just for carbon) and health benefits from reduced local pollution/inactivity. Some estimates exceed $2–$3/gallon or more when including active travel health co-benefits or very high climate damages, though these remain debated.
Current U.S. combined federal + average state gasoline tax is roughly 45–60 cents/gallon (federal 18.4 cents + state averages varying widely, e.g., higher in California/Illinois), excluding additional sales taxes or cap-and-trade equivalents in some states. This is well below most economic optimal estimates.

Key Breakdown (Approximate, Based on Representative Studies)​

ExternalityTypical Range (cents/gallon)Main DriverNotes
Congestion25–60Miles drivenLargest component in many studies; better addressed by VMT/mileage taxes or congestion pricing
Accidents15–50Miles drivenRisk externalized (not fully paid by drivers/insurers)
Local air pollution5–30CombustionHealth damages; varies by location/vehicle
Climate (CO₂)10–200+Gallons burnedHighly sensitive to SCC (e.g., $50/ton ≈ 25–30 cents; $200/ton ≈ $1–$2+)
Oil dependence/security5–25Imports/oil market powerGeopolitical/macro risks
Total Pigouvian component≈50–300+ cents—Pure externality internalization
Full optimal (second-best)≈$1.00–$2.50+—Includes fiscal/Ramsey effects, interactions
Bottom line: Most rigorous economic analyses conclude the optimal gasoline tax in the US is significantly higher than current levels—often $1–$2+ per gallon in total (with pure externality components potentially 50 cents–$2+ depending heavily on the assumed SCC). Congestion and accidents tend to dominate non-climate estimates, while climate damages can push the number much higher under current SCC figures.
Important caveats:
  • Gasoline taxes are second-best for mileage-related externalities (congestion/accidents/local pollution); vehicle miles traveled (VMT) taxes, congestion pricing, or emissions-based fees would be more efficient.
  • If a nationwide carbon pricing system already exists, the climate component drops out.
  • Estimates vary with assumptions (e.g., behavioral elasticities, discount rates, local conditions).
In short, from an efficiency perspective focused on externalities, the current U.S. gasoline tax is too low to fully internalize the associated costs.
 
nsacpi said:
You could choose to debate the merits of the policy. Or make vague allusions to blame shifting by unnamed politicians.
Click to expand...
https://www.latimes.com/california/...o-consider-profit-penalties-for-oil-companies

SACRAMENTO — A new class of state lawmakers will be sworn in Monday and thrust into the middle of Gov. Gavin Newsom’s political fight with oil companies, testing the clout of an industry that spends heavily to influence the Legislature and potentially affecting gas prices for Californians.

Newsom has accused the oil industry of intentionally “price gouging” consumers at the pump as retribution for the state’s policies to phase out dependence on fossil fuels in an effort to curb climate change. The petroleum industry argues the consequences of those policies and the state’s dependence on a small number of oil refineries drives up gasoline costs.

In response to gas price spikes this year, the governor pledged to back bills to place new monetary penalties on excessive oil company profits in a special legislative session.

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Couple of years old, but nothing out of the ordinary.
 
You seem to think I’m arguing against the merits of a gas tax to deal with externalities, but I’m not. What I’m saying is if this is a good policy, maybe the politicians enacting it should own those higher prices and make their case to voters. Instead, they pretend their policy choices aren’t responsible for higher prices, choosing to blame oil executives for their “greed” and “price gouging” instead.
 
Yeah. Politicians blame shifting is distasteful. Even more so when the policy is producing the results it is supposed to. I too wish politicians didn't sugarcoat thangs and treated voters as adults.
 
nsacpi said:
Yeah. Politicians blame shifting is distasteful. Even more so when the policy is producing the results it is supposed to. I too wish politicians didn't sugarcoat thangs and treated voters as adults.
Click to expand...
Ah so you love a Trump type politician. Got it
 
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