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Auto Dealers Seek 'Gas Price Floor'

Would raising the gas tax to $1 and establishing a 'gasoline price floor' provide market stability for auto dealers? Some dealers, including the nation's largest, say 'yes'. Economists agree. Politically impossible? Read on.
August 15, 2012, 11am PDT | Irvin Dawid
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National Journal's energy and environment correspondent, Coral Davenport goes to "the heart of the Southern California car market" to speak with an auto dealer who supports a a more than 500-percent increase in the gas tax to $1 because it would bring "market certainty".

The fluctuating price of gasoline creates market uncertainty for dealers, meaning sales of SUVs and efficient compacts vary with the price of gas, according to the Morovia dealer.

"A growing number of car dealers advocate the same solution to the problem: raise the gasoline tax, enough to create a consistent, predictable demand for fuel-efficient cars and to force automakers to build gas-sippers that people want and can afford. One way to do this, say automakers, would be to create a new gasoline price floor -a point below which prices won't fall."

Not a new concept, Washington Post conservative columnist Charles Krauthammer wrote about it in 2004, as did University of CA energy expert Severin Borenstein (Planetizen, 2008).

Michael Jackson, chief executive officer of AutoNation, the world's biggest auto retailer, is an outspoken gas tax advocate. In April, he told CNBC: "At the end of the day, you would need a gas tax, increased over decades, to keep the consumer focused on conservation."

"Two of our biggest problems, as an economy, is our dependence on oil and our contribution to climate change. A gas tax gets at all of these neatly, elegantly, and efficiently," says James Sallee, an expert on energy and tax policy at the University of Chicago.

"We know clearly and convincingly that new-car purchases are responsive to price fluctuations. It sends a market signal, instead of having government regulations pick what we do", says Sallee.

"That idea, of course, is tantamount to jumping on a political hand grenade, which is why the politicians these economists advise haven't tried to do it.

The solution there could be a tax trade-off: raise the tax on gasoline but make an equivalent cut on payroll or income taxes."

Thanks to MTC-ABAG Library

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Published on Thursday, August 9, 2012 in National Journal
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