Fuel for Thought

by Don Boudreaux on April 29, 2006

in Prices

Each year, American drivers consume about 65 billion gallons of gasoline.  (You can figure out how I derived this figure by seeing this useful chart published by the U.S. Department of Energy, and then noting that each barrel of crude oil produces about 19.5 gallons of gasoline.)

The average price of unleaded 87-octane gasoline in 2004 was $1.88 per gallon.  Today it’s about $2.93 — so, $1.05 per gallon more today than in 2004.  Thus, at $2.93 per gallon, we Americans are spending $68.3 billon more per year for gasoline than we spent in 2004.  (I’m crudely assuming that this higher price of gasoline doesn’t cause the quantity demanded of gasoline to fall.  Of course, to the extent that this higher price does cause quantity demanded to fall, the extra amount of money we spend on gasoline per year will be lower than $68.3 billion.)

Let’s put this figure in perspective: According to this just-released paper from the Cato Institute, Chris Edwards reports that the annual cost in 1995 of complying with federal-income-tax requirements was $112 billion.  In 2005, this compliance cost was up to $265 billion — $153 billion more in 2005 than in 1995.  Adjusted for inflation, this compliance-cost increase is $122 billion (in 2005 dollars).

Note that in 2005 our cost of complying with federal-income-tax regulations was $53.7 billion more, in real 2005 dollars, than the extra amount we’re now spending compared to 2004, on an annual basis, for gasoline.

And Congress has the gall to pontificate about the alleged unacceptability of the higher prices now charged by oil companies.

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{ 11 comments }

Andrew April 29, 2006 at 6:46 pm

The report you mention is actually from the Tax Foundation, which Edwards cites his most recent newsletter. Here's the full TF study on tax compliance costs:

http://www.taxfoundation.org/publications/show/1281.html

And here's the Edwards newsletter (Tax & Budget Bulletin) where he mentions it:

http://www.cato.org/pubs/tbb/tbb-0604-33.pdf

blink April 29, 2006 at 10:12 pm

I like the line of reasoning in this post, but it seems that the analysis is open to two criticisms as presented. First, aggregate numbers are inappropriate due to population changes. The difference may be insignificant from 2004 to 2006, but it surely is not for 1995 to 2005. Of course the cost of tax compliance will increase when more citizens must fill out tax forms. Why not look at compliance costs (and gasoline expenditures) per capita instead?

Second, the years compared do not agree. Since the report cited compares 1995 to 2005, it makes sense to use the data provided. With scarce intellectual capacity (and time to research), a skeptical reader may well assume that 2004 and 2006 were chosen purposefully to magnify or dampen the effect of the gasoline price change. Why not simply use the same years for each?

Aaron Krowne April 30, 2006 at 12:30 am

Nice find.

The humble taxpaying citizen is getting squeezed all around…

Christopher Meisenzahl April 30, 2006 at 12:56 am

Great job Dr. Boudreaux.

Grzegorz April 30, 2006 at 6:32 am

"Great job Dr. Boudreaux"

I second that; Congress, specifically the Senate, will do anything to distract the average citizen from recognizing the fact that the Senate is inept.

Half Sigma April 30, 2006 at 5:13 pm

You need to explore the reasons why the tax code always drifts towards complexity, and how this can be stopped.

After all, even liberals ought to favor a simpler tax code because it means more revenue is collected and that there's less cheating.

lee May 1, 2006 at 12:25 am

And of course the Cato Institute or the Tax Foundation which like taxes like they like eating hot rocks whole will give us a correct and unbiased "estimate."

matt May 1, 2006 at 11:01 am

dr. boudreaux

i think your gasoline consumption number is low. it's about twice your figure.

http://www.eia.doe.gov/neic/quickfacts/quickoil.html

matt May 1, 2006 at 11:29 am

nevermind.

David Andrew Taylor May 1, 2006 at 1:50 pm

Excellent. Perhaps some reasoning will enter into the system and Congress will do their part in reducing the burden to Americans. And fairies will sprinkle dust all over us and all will be well. Right!

Brendan Lowney May 1, 2006 at 3:17 pm

Don,
Lee is correct. Your gasoline consumption number is too low. According to the EIA, per capita gasoline consumption was 464 gallons in 2004. According to Census the population was 293.9 billion. Thus the U.S. consumes about 136 billion gallons of gasoline per year.

http://www.energy.ca.gov/gasoline/statistics/gasoline_per_capita.html

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