Gasoline prices: USA vs. Europe


Randy Black writes:The US news media is filled with apocalyptic stories about the run up in U.S. gasoline prices these days and its potential negative effect on vacation expenses, commuting costs and the added cost of running a simple errand. CNN finally ran a story today that outlined the facts regarding what the Europeans pay.
 
CNN said that the average price, in U.S. dollars, for a gallon of gas among European nations ranged from $5.50 in France; $5.78, Italy; $5.94 in the UK; to $6.49 in the Netherlands. Compared to the $2.04 per gallon that I paid to fill up my Ford Escort this morning in a Dallas suburb, we appear to have it pretty easy. In Texas, the local and federal taxes account for about $.36 of that $2.02, or about 18 percent.
 
In Europe, nearly 66 percent of the price is tax, thus, if you take out the European taxes, they would pay about what we pay in the USA. Why in the word do the Europeans allow such outrageous taxes, and how to their governments justify such a practice? The terribly invasive and negative effects of taxation on the daily lives of the various populations seems to be a good topic for WAIS discussion.
 
Do Europeans generally pay such low income taxes, or other types of taxes such as property taxes that their governments must tax gasoline so highly to make up for the difference? Are the social entitlement programs so pervasive across Europe that gasoline must be taxed as such an exorbitant rate? Might our European WAISers outline the various sources of revenue as they apply to the social entitlement programs. Just what does a Frenchman, a German, or an Italian worker pay taxes on? What are the rates of income taxes? For that matter, does the average European family own a car? Or two?

RH: In Congress today a representative from Houston, Texas  decried the disastrous consequences of high gas prices, citing the threat that airlines could go bankrupt. Some have, and is Europe SwissAir is in trouble.  This raises the whole question of deregulation.
 
 
Randy Black said: In Europe, nearly 66 percent of the price is tax, thus, if you take out the European taxes, they would pay about what we pay in the USA. Why in the word do the Europeans allow such outrageous taxes, and how to their governments justify such a practice?  From the UK, George Sassoon replies: I have driven diesel cars for the last 20 years, and the UK government has increased the tax on our fuel because it is more economical!  My present main car is a diesel Volkswagen which will do 120 mph, which I have only dared to try in France on a Sunday lunchtime, when it is is known that all the police are at the sacred déjeuner.  Nevertheless, we still manage to commute between our homes in England and Scotland which are 500 miles and an expensive ferry apart, and travel to ex-Yugoslavia most years a couple of times using even more expensive Channel ferries - but somehow we survive.  I suggest that anyone in the U.S. worrying about fuel prices should look at diesel cars, and not complain if they have to line up behind 18-wheelers at filling stations and find that the nozzle is too large to fit their tanks!  RH: Yes, but Randy's question about taxes?

From Moscow, Cameron Sawyer writes:Randy Black asks why Europeans pay such high taxes on gasoline.  Well, Randy, Europeans, at least, Western Europeans, pay high taxes on everything.  Why is well articulated more than 600 years ago by the Arab historian Ibn Khaldun: It should be known that at the beginning of a dynasty, taxation yields a large revenue from small assessments. At the end of the dynasty, taxation yields a small revenue from large assessments. ('Abd-ar-Rah.mân Abû Zayd ibn Khaldûn, The Muqaddimah, An Introduction to History, Franz Rosenthal translation, abridged and edited by N.J. Dawood, Bollingen Series, Princeton University Press, 1967, p.230, quoted at http://www.friesian.com/sayslaw.htm).

Western Europeans are at the end of their dynasty, so to speak, flogging the peasants -- er, taxpayers -- harder and harder in order to squeeze more and more tax revenues out of a shrinking tax base.  We are in the middle of our dynasty with only moderately oppressive taxation, and the Russians are at the beginning of theirs with their 13% flat tax on income and so forth.  Western Europeans pay income taxes up to 50% and more, pay VAT of as much as 20%, and pay higher prices on goods and services through higher corporate taxes.  The total tax burden in EU countries averages about 42% of GDP, compared to about 29% of GDP for the U.S., and remember that the GDP base in Europe is much lower than in the U.S., so the untaxed GPD per capita in Europe is a fraction of that in the U.S.  See http://www.timbro.com/euvsusa/pdf/EU_vs_USA_English.pdf.   Why German and French voters  -- citizens of these formerly rich countries, heading right down the road to third world status -- tolerate this situation is beyond my understanding.  But momentum is gathering for reform, and Ireland, where moderate tax reform has produced spectacular economic performance, has shown a clear path for reform for Europe.  I cannot believe that this reform will be long in coming now.

Taxes on gasoline are a special case.  A penny a gallon tax was first imposed on gasoline in 1932 in order to help fund the federal budget, but in 1956 an uncharacteristically enlightened reform created the Highway Trust Fund, into which most gasoline tax revenues go and which are used mostly for highway maintenance and construction.  Thus our gasoline taxes are not really taxes at all, but rather a highway user fee which is mostly reinvested into the roads we use.  Despite the drawbacks of this system -- the inherent inefficiency of governments, looting of funds by corrupt bureaucrats through kickbacks and other mechanisms -- there really isn't a better way to fund necessary road construction.  So we should count ourselves lucky.

Western Europeans pay vastly higher taxes on gasoline, and much less of these taxes go to road construction.  In typical fashion, Western Europeans use gasoline taxes to redistribute wealth between motorists and users of public transport, which is heavily subsidized by gasoline taxes and by general funds as well.  Despite the degradation of standard of living which occurs from the inefficiencies of this system, most Western Europeans are satisfied with it -- discouraging the use of automobiles and pushing people into public transportation supports what they think of as their way of life, and indeed, there are real advantages to those European compact city cores which cannot support universal automobile ownership.  I have to think that there is more economically rational and less manipulative way to achieve this, but there you have it.

RH: Moral: buy a bicycle, or at my age a tricycle, of which there used to be many.  I haven't seen one for years.
 
 
 


Ronald Hilton 2005

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last updated: June 8, 2005