Week Four Assignment, Taxation
Week Four Assignment, Taxation
CSU - Dominguez hills
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Date Created: 11/16/15
Page One Gasoline Taxation and the Effects on the Economy Page Two In America we pay a gasoline tax for the gasoline we buy This gasoline tax is collected by the Federal Highway Trust fund and is used to pay for road maintenance and other transportation projects or needs here in our country Therefore gasoline tax can be described as a user s fee You drive on the roads which increases wear and tear on the roads so you pay the tax on your gasoline in order to maintain the roads There has been a tax on gasoline since 1919 The initial tax rate was only 1 cent on the gallon but today more then 50 years later we pay around 1819 cents of federal tax on every gallon of gasoline we purchase State gasoline tax is a different thing altogether The average state tax for gasoline is about 2829 cents on the gallon So all together we pay about 48 cents of tax per gallon of gasoline purchased here in the United States of America The average cost for a gallon of gasoline today in my home state of Texas is 321 wwwfuelgaugereportcom But it should be mentioned that gas is cheap in the United States when compared to the rest of the world because it is supported by tax dollars Is gas tax levied on the producers the consumers or both Well the consumer will always ends up with the short end of the stick on this one We pay the taxes on the gas that we need to function effectively and comfortably in today s gasoline dependant society Although the producers of gasoline still have to pay the taxes at the pump for gasoline in terms of gasoline needed for vehicles when locating the crude oil production distribution manufacturing refining the crude oil and marketing their products Their trucks run on gasoline Page Three How does the gasoline tax affect supply or demand Well higher prices will obviously cause the less financially wealthy consumers to adapt to buying less fuel Of course most all gasoline consumers simply cannot buy less we have to pay the gasoline taxes whether we agree with them or not For most of us driving our cars is not an option but a requirement Most of us are not so lucky as to have a job within walking distance of our homes How does the tax affect the equilibrium price and quantity The gasoline tax artificially raises the price The supply curve shifts to the left and the price goes up and the quantity demanded equilibrium point decreases Basically you get less gas for the same money A common argument is made that gasoline consumption is inelastic so that the demand will hardly be changed This is true to a point for general household consumption Many households will simply increase their gasoline expenditures Some households will economize if the price increases enough as I stated earlier In addition household consumers may even travel less by air if the gasoline tax on the airlines forces airplane tickets to increase in price Business consumption of gasoline may be very elastic If transportation costs are a significant portion of the companies spending an artificial increase to gasoline prices may cause these businesses to become unprofitable Potential businesses may be halted in their tracks and existing businesses would have to shut down production temporarily until gas prices have leveled again Page Four So we have interesting opposite impacts On the one hand price is driven up artificially by forcing consumers to pay the tax On the other hand the ensuing decrease to demand should drive prices back down I don39t think we can really know what the equilibrium price would have been in the absence of the tax It would not be surprising if it would have been near to what the current price is anyways The only change is a redistribution of wealth between consumers oil and gasoline producers and the government When you add in direct subsidies to oil companies regulations protecting or at times attacking their revenues and so forth you get a tangled web It39s hard to know how the wealth transfer plays out My guess would be to the guys with the more organized lobbying groups A hypothetical situation where a price ceiling is imposed would be that the federal government and state governments would each charge 15 cents tax on a gallon of gasoline This would be ideal because roads and transportation needs could still be maintained to close to the current standards and everyone would be able to afford gasoline I think this would sustain the oil market Page Five References The Real Cost of the Federal Tax on Gasoline Retrieved April 10th 2008 from httDWWWartbaor2economics researchcurrent issuesreal costDdf 2008 httpWWWfactsonfue1orggasolineOilPrimerpdf AAA 2008 Daily Fuel Gauge Report Texas Unleaded Average Retrieved April 10th 2008 from httDZWWWf11 12auQCI CDOI39tCOI I JTXEIVEaSD Mankiw N G 2004 Principles ofeconomics 3rd ed Chicago IL Thomson SouthWestern
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