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Gas Taxes Are Highly Inflammatory
Subject Gasoline Tax
Topics Fiscal Policy, International Finance
Key Words Budget Surplus, Tax Cuts, Inflation
News Story

The 10-year high level of gas prices caused angry protest in most of Western Europe including Britain, Germany, Belgium and France. Protests began in France, a country where strikes and demonstrations are almost a daily occurrence, and spread to other European countries where widespread protests are rare. The object of the protests was the gasoline tax. In the United Kingdom, the gasoline tax amounts to 76.8 percent of the retail price of gasoline. Gasoline taxes in the U.S. represent only 24.1 percent of the pump price. The protests, most severe in the U.K., have not resulted in any government action except in France.

In recent years, some European governments have been aggressively raising gasoline taxes. They have purposely raised gasoline prices in an effort to discourage driving and improve the environment. The group most affected by these actions has been truckers. Trucks are a very important to the European economy. In 1997, approximately 73 percent of freight was shipped by truck, compared with 14.5 percent by rail. But the trucking industry in Europe is composed of many small operators and this makes it difficult for the truckers to pass their higher costs on to their customers.

Gasoline taxes are generally value-added taxes, that is, the tax is a certain percent of the retail price of the product. Consequently, as oil prices have risen, so have the gasoline taxes. The increase in gasoline taxes, as well as an economic recovery, has caused government revenues to swell, generating, in some cases, budget surpluses. These surpluses are an additional irritant to protestors who argue that the government could afford to lower taxes. Gas tax revenues are an important source of funds for these governments. In Germany, 20 percent of total government revenues comes from gasoline taxes. Over 6 percent of British revenues are derived from gasoline taxes.

(Updated October 1, 2000)

Questions

1. In Germany, 28.6 percent of revenues come from personal income taxes, 34.6 percent from corporate taxes, 20.4 percent from the gas tax, 5.6 percent from the tobacco tax and 10.5 percent from other taxes. Compare these percentages to U.S. government revenue sources.
2. Germany and the U.K. impose an ecological tax on gasoline in addition to the VAT. In what ways do these taxes differ from income taxes?
3. Who benefits and who is disadvantaged by a gasoline tax that raises the same amount of revenue as an income tax?

Source Marc Champion, Ernest Beck, and Christopher Rhoads, "In Europe, Gas Taxes Ignite a Political Fireball," The Wall Street Journal, September 14, 2000.

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