Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, July 26, 1993 TAG: 9309060244
SECTION: EDITORIAL PAGE: A7 EDITION: METRO
SOURCE: JOHN M. BERRY
DATELINE: LENGTH: Medium
It is bought frequently from a host of competing filling stations with prices posted on signs easily visible from the street, and many motorists keep close track of their mileage.
This singular sensitivity is one reason for the sharp debate over whether to raise the 14.1 cents per gallon federal motor fuel tax as part of President Clinton's deficit reduction: The tax increase would be noticed, at least initially.
However, as sensitive as consumers are to gasoline prices, few probably realize that if prices at the pump are adjusted for general inflation, the cost of gasoline is close to its lowest level in more than half a century.
The average price of gasoline sold last month in the United States was $1.19 a gallon, including a nationwide average of about 33 cents a gallon in taxes. The $1.19 is down about a dime from the price motorists paid in 1981, according to the Bureau of Labor Statistics. But if the 1981 price is expressed in terms of a dollar with today's purchasing power, it becomes $2.06 a gallon.
In other words, despite all of the local, state and federal motor fuel tax increases since 1981, the real, inflation-adjusted price at the pump is 42 percent lower than it was a dozen years ago.
Some of the strongest opposition to any increase in the gasoline tax has come from congressional representatives from Western and Southwestern states. They argue that it would be unfair to their constituents because many of them regularly drive much longer distances than do residents of more urbanized states in the East.
But when the real price of gasoline was at its highest in 1981 because of high prices for oil, as well as other types of energy, the attitudes in much of the oil- and energy-rich West and Southwest were quite different. The benefits of the energy boom for the economy in those states shouldered aside any concern about the cost of driving.
One memorable Texas bumper sticker responded to complaints from the North and East: ``Let the bastards freeze in the dark.''
Actually, the real price decline for gasoline is a bit larger than the official government figures show. When BLS incorporated self-service station prices in the consumer price index, it assumed that the loss of service - the station attendant filling the tank - offset the lower price of the gasoline. Thus, in terms of inflation-adjusted dollars shelled out, the decline has been greater than the index indicates.
Furthermore, according to data from the American Automobile Association on the annual cost of owning and operating a car, gasoline's share of the cost per mile has dropped steadily in recent years.
The AAA estimates that the cost of driving 15,000 miles this year will be 38.7 cents a mile. That figure is a composite of costs for a four-cylinder Ford Escort, a six-cylinder Ford Taurus and an eight-cylinder Chevrolet Caprice. It assumes a gasoline price of $1.22 a gallon and that the car would be driven for four years before being traded in.
Adjusting the AAA numbers from earlier years for increases in the CPI shows that the cost of driving has remained remarkably stable over the past three decades. For instance, driving an eight-cylinder Chevy Bel Air in 1963-64 cost 42.2 cents a mile in terms of today's dollars, while this year's Chevy Caprice will cost 43.3 cents a mile.
Of course, in any year, the cost per mile for someone buying a cheaper, older car will be well below those calculated by the AAA since the largest component of that cost is what it takes to buy the vehicle. For this year's composite car, AAA put the cost of driving 15,000 miles at $5,804, with $1,380 for the operating costs of fuel, oil, maintenance and tires.
Based on experience, motorists would not end up paying the full amount of any increase in the motor fuel tax, such as the 4.3 cents per gallon in the Senate's version of the deficit reduction package. In a relatively weak market, such as exists now, filling station operators likely would not be able to increase their prices by the full amount of the added tax.
However, even if pump prices rose in line with the entire tax increase, at 4.3 cents a gallon, the added cost per year would be $20.47 for 10,000 miles, $30.70 for 15,000 and $40.94 for 20,000. For the AAA composite car, that would raise total costs for a year by 0.5 percent for the 10,000- and 15,000-mile drivers, and 0.6 percent for the 20,000 one.
In each case, a 4.3-cent increase would raise the cost per mile by 0.2 cent - less than one-fourth of the cost per mile of using tires, according to the AAA.
The message in all these numbers is not that the tax should or should not be increased, but rather that either way it would not be a very big deal for anyone, including motorists in those wide open Western states.
\ John M. Berry covers financial news for The Washington Post.
The Washington Post
by CNB