Raising Prices To Save Money

Posted by Eric de Place

08/12/2008 06:45 AM

Taxes are expensive, but oil addiction is really costly.

Over the weekend, a good column by Thomas Friedman in the NY Times about Denmark's success in insulating itself from high prices. I won't try to reprise it here, but just want to highlight a critically important point:

“I have observed that in all other countries, including in America, people are complaining about how prices of [gasoline] are going up,” Denmark’s prime minister, Anders Fogh Rasmussen, told me. “The cure is not to reduce the price, but, on the contrary, to raise it even higher to break our addiction to oil. We are going to introduce a new tax reform in the direction of even higher taxation on energy and the revenue generated on that will be used to cut taxes on personal income — so we will improve incentives to work and improve incentives to save energy and develop renewable energy.”

Friedman doesn't mention this, but Rasmussen heads a right-of-center coalition government. He's not a lefty; he's a fiscal conservative who is using a tax-shifting technique to continue a long-term strategy of making Denmark one of the most energy efficient economies on earth. As a consequence, skyrocketing energy prices are annoying to Denmark's economy, but they aren't devastating.

The problem, of course, is that to follow Denmark's lead, we North Americans will have to get over our congenital aversion to higher energy prices.

After reading Friedman's column, I turned on the Olympics last night. During the commercial breaks I was treated to ads from both Washington's governor and her challenger -- each accusing the other of "raising the gas tax" as if this were the worst imagineable sin. Unless I'm mistaken, that big scary tax hike was the recent "nickel tax," equal to a whopping 1.3% of the current retail price of gasoline.

Sigh.

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Comments

Posted by eldan 08/14/2008 04:47 PM

I'm in London right now, and it's striking how differently recent oil price movements are viewed here. People have grumbled about the high cost of petrol and how much of that is tax for as long as I can remember, but because it's always been expensive recent "shocks" only register as relatively small percentage price increases, and there really is much less of a culture of relying on the car for day-to-day commuting, so petrol use is much more optional. It makes current events much less panic-inducing to say the least.

[that said, Britain has some serious electricity supply/cost issues coming up in the very near future, because having been a net fossil fuel exporter until relatively recently has bred an over-reliance on gas-fired power stations, but that's another story....]

Posted by Rob Dickson 08/15/2008 10:36 AM

There are 2 sides to a "tax shift" as discussed by Friedman and others. The other side is rarely discussed. Yes, taxes on energy go up (as should taxes on any type of pollution). Taxes on labor and income should be reduced by the same amount as the tax increases. The result? The same overall tax burden, but a shift to more economically efficient and fair taxes. In the end, more innovation and more jobs for our global economy, and less pollution. What's not to like?

Posted by Josef 08/15/2008 03:18 PM

I'm pro-Rossi, but it's not the 2003 nickel tax - it's the 2005 9.5 cent gas tax increase on top of that which is the latest.

A Dutch-esque tax shift sounds like a good idea, too.