U.S. Energy Policy: Impacts of an Increased Federal Revenue Neutral Gasoline Tax

Abstract

The future holds significant challenges for the United States with regard to clean, inexpensive, and reliable energy resources. Of these energy challenges, issues relating to transportation fuels appear to be some of the most acute and serious. The price of gasoline does not reflect the true societal costs due to a variety of market externalities. Domestic energy policy must investigate new proposals that offer insight into possible solutions. The following thesis reviews geopolitical risks associated with current U.S. petroleum consumption trends. It also discusses the role gasoline taxes might have in mitigating certain amounts of demand growth. The gasoline taxes that are investigated are revenue neutral. This concept entails returning all revenue raised by any increased tax to consumers with reductions in other tax burdens. While this idea is somewhat radical in nature and politically complex, the consequences of increased gasoline taxes may be socially beneficial. The following study finds that gasoline is one of the most important products in modern society. As such, reducing its consumption is extremely difficult. However, increasing the cost of gasoline by raising taxes can influence demand to some degree. An increased revenue neutral gasoline tax could prove to be part of an effective overall U.S. energy policy.