[Note: sorry for my recent posting hiatus (thanks to Jarred for keeping things humming). Welcome to new readers! -T]
I’m pretty happy with my auto insurance rates through [insert large insurance provider with articulate reptilian spokesman here]. But with my driving patterns (less than a 3 mile commute to work; occasional road trips and errands around town), I’m definitely paying more than necessary and subsidizing the insurance of riskier drivers. From the authors of Freakonomics, writing in the NY Times Magazine:
Imagine that Arthur and Zelda live in the same city and occupy the same insurance risk pool but that Arthur drives 30,000 miles a year while Zelda drives just 3,000. Under the current system, Zelda probably pays the same amount for insurance as Arthur.
While some insurance companies do offer a small discount for driving less — usually based on self-reporting, which has an obvious shortcoming — U.S. auto insurance is generally an all-you-can-eat affair. Which means that the 27,000 more miles than Zelda that Arthur drives don’t cost him a penny, even as each mile produces externalities for everyone. It also means that low-mileage drivers like Zelda subsidize high-mileage drivers like Arthur.
First of all, you’re correct in assuming that I’ve quoted this example because the person representing my predicament is named Zelda. But far more importantly, the idea of “Pay As You Drive” (PAYD) insurance is gaining traction. The article references Progressive Insurance’s willingness to test a PAYD system in a few states. PAYD involves GPS locators that track a car’s movement; privacy advocates will no doubt bristle at the thought of an insurance company maintaining those types of records. Yet the cautious momentum behind PAYD is a far more sensible response to high gas prices and the environmental consequences of our national car obsession than an utterly moronic “gas tax holiday” (Tom Friedman takes down that idea nicely here).
Congestion pricing–another attempt, albeit imperfect, to incentive good behavior like carpooling and public transit–is stalled politically in New York City. Nevertheless, I’m heartened by the buzz surrounding ideas (like PAYD and Congestion Pricing) driven by a simple, effective equation: place a true cost on behavior that stresses infrastructure and the environment alike while rewarding individuals with incentives to improve their impact. Think there’s any chance that this trend will gain real traction?
Image used under a Creative Commons license courtesy of Flickr user Peter Kaminski.
A Gas-Tax Holiday is obviously futile pandering and is fundamentally a dumb idea. I thought that both Clinton and McCain had smarter people who knew better than to suggest such silly stimulus ideas.
But wait, “the chosen one’s” (who actually promoted suspending the gas tax in Illinois in 2000) promise to institute “windfall taxes” on oil companies is not a viable decision either. At its heart, such a tax is goes at the heart of what makes our country great. Instituting a windfall a tax on a company for selling a commodity that happens to be making profits based over speculation and not the forces of supply and demand is wrong. Such a windfall tax would probably only exacerbate high prices because a tax would discourage an oil company from finding new sources. It’s not Exxon or BP’s fault that some commodity trader is hedging against a declining (now finally rising) dollar. The companies themselves have stated that prices should really be around $80 dollars a barrel. Exxon still uses a model based on $50 barrel oil in order to determine the profitability of a new project.
Candidates should be smart enough to realize that markets are efficient. Ask any condo builder in Miami or Phoenix what over speculation does to short-term profits when there are no fundamentals underlying rising prices. Oil, like other commodities (rice anyone?) are just in a boom time right now based on fear and panic, not fundamentals. Everything will work itself out in time. Let’s just hope that the correction happens before one of the three candidates has a chance to mess it up.
Regardless of when you think peak oil will happen, it’s foolish to assume that, over the long term, oil prices won’t continue to rise as we plumb and burn a finite resource.
“Windfall profit” taxes, paired with incentives for innovation and alternative energy development, aren’t a terrible solution–politically OR realistically. While I understand your philosophical concern with taxing profits, it’s equally fair to say that allowing oil companies to earn as much as possible from a product with a demonstrated negative impact on the planet–all the while giving those companies tax BREAKS–is not a recipe for innovation.
You’re absolutely right, we should end the tax breaks and tax them like any other company. Just don’t levy additional taxes just because they are producing a commodity. Certainly don’t get the government involved with giving subsidies to develop alternative fuels. We’ve seen how that’s worked out with the corn-based ethanol market. Prices will definetly rise as any finite commodity depletes. However, the free market will find a way to fuel the future, there are hundreds of companies right now who are working on smart and sustainable fuel options. Why muddy the process up and have the govenment decide which of these possible opportunities we should fund based on what group Congress or the president is pandering to today? What happens if the government gets it wrong and the company that could produce the most sustainable and clean energy source is forced out of business because the government decides to fund switchgrass or algae?
To be clear, I’m not for a second arguing that we’ve managed to find the right incentives for alternative energy development. The disastrous energy bill missed the mark, in my view, by issuing mandated volumes of SPECIFIC types of alternative energy (x% from corn ethanol, y% from wind, etc)and by not recognizing that those solutions should vary by location. Instead of dictating what solutions will work, why not try to develop an objective standard for “clean energy?” This might well be a complete fantasy, but why wouldn’t it be a good thing (in theory) for tax policy to reward a company that creates an energy product which emits less than X pounds of carbon dioxide (and other pollutants) per KWH? Or mile? You’d have to be careful to capture the production cycle of the fuel (i.e. corn ethanol would fail any decent standard), and setting a standard would be difficult, but wouldn’t this speed up alternative energy development?
I know that many brilliant companies are working on energy solutions–I’ve personally invested in the few of them that have gone public. But why not give THEM the tax breaks that would accelerate their ability to bring solutions to market?
I’m no energy or green expert, but it seems to me that it would be OK to offer incentives for all (as opposed to having Congress or the White House pick and choose who gets funding). Similar to what Taylor says: develop standard requirements for government subsidies. Sure, this will likely be politicized somewhat, but it’s better than nothing.
We all agree that oil companies should be taxed like any other company… but I don’t think Taylor or others are proposing a windfall tax simply because they produce a commodity. They are proposing a windfall tax specifically because oil — while necessary for our economy — is also helping to kill out planet and hijack our foreign policy, and these companies are making a killing off of it. Exxon just announced, what, $10 billion in profit? And that was underperformance?!
Obviously, there’s may be thresholds here and there at which, statistically, people who drive large amounts are more likely to be in an accident. However, is it possible that people who drive more are going to be better drivers and less accident prone? I drive all the time and have never had more than a small bump with no damage.
What do you guys think about this guy’s idea to raise the gas tax and return half of the new revenues to consumers in the form of a rebate?
This seems like it would encourage conservation by consumers and also send a message to oil companies to start looking at other forms of energy for their profits. The other half of the revenue would be used to invest in alternative energy.