Negative Effects of Increasing Gasoline Prices Essay Example
Negative Effects of Increasing Gasoline Prices Essay Example

Negative Effects of Increasing Gasoline Prices Essay Example

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  • Pages: 11 (2964 words)
  • Published: March 26, 2017
  • Type: Essay
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An economic system is a structure composed with people and institutions. Both dimensions are responsible for maximizing the wealth of an economy, regardless of being on a domestic or international scale. These people and institutions play a large role, whether at the top or bottom of the societal ladder. At the top of the ladder, people and institutions are responsible for managing money and taxes received from people and institutions at the bottom of the ladder. This money and taxes can come from a wide assortment of sectors including agriculture, healthcare, workforce, and transportation.

The transportation sector involves the taxation of gasoline. Gasoline balances on a positive and negative line. On one hand, it provides transportation for the majority of citizens and companies in North America. However, Menkes and Fawcett explain, “octane enhancing constituents of gasoline pose a number

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of health hazards including metallic (lead, manganese), aromatic (e. g. , benzene), and oxygenated additives in both industrialized and developing countries”(1997,270). When approaching the matter of weather or not to double taxes, the easy answer is yes.

The government doubles taxes and gasoline users are discouraged to fuel their pollutant producing vehicles. However, the repercussions of this tax extend far and beyond such an appearance of an easy remedy. There are a number of factors to consider when looking at this situation more closely. Doubling gas taxes will affect the stable base of rural communities. With an increase of gasoline prices, production prices will increase. The cost of goods increases as a result of transportation cost increasing.

The effects will slowly increase up the ladder through consumer and in turn the greater economic sector internally as well as externally

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This essay will demonstrate why doubling taxes on gasoline produce a negative chain reaction both in the Canadian domestic economy as well as the Canadian international economy. The current domestic economy in Canada is greatly affected by oil and gas. When there are large reserves and an increase of active oil drills, the economy seems to receive a boost. This is because prices for such things like gas and oil fall and people are able to consume more gas at a lower price.

There is more supply as prices fall, therefore people save money on gas and can consume other items in the economy. People working in these industries have more job openings and more jobs filled, creating a lower unemployment rate and a higher national per capita income (Associated Press, 2006). Since, people use oil and gas for so many different things like heating their homes, driving their cars, and a variety of other sources, the overall Gross National Product (GNP) for the consumer will rise (Associated Press, 2006). Economic growth is affected through significant fluctuations in inflation of oil and gas.

With the rise in gasoline prices, negative effects can be seen beginning with the agricultural sector and moving all the way up to large corporate institutions. For the entire population, doubling the taxes on gas means that at the least, food costs will increase. Farmers are dependent on fuel for their equipment with which they grow food. Farm machinery decreases the need on farms for farm workers. Rather than spending money to pay salaries for multiple employees, the modern farmer uses his financial resources to purchase and maintain farm equipment.

Farm machinery and agricultural equipment

requires diesel fuel to operate, which contributes to air pollution. Svejkovsky exemplifies this by stating, “expenditures on Canadian farms increased by an average of 26 percent in 2005, and fuel costs contributed heavily to that increase”(2007). Specifically, Canadian farmers spent about six billion dollars on diesel fuel and two billion dollars on gasoline in 2005(Svejkovsky, 2005). The outcome of this is that the additional cost will be passed along to the consumer.

Higher production costs means that the cost of the goods outputted must be increased to balance everything out. When it cost more to fuel the tractors that farmers use to grow the food then everyone will pay more at the grocery store. Svejkovsky reported that in 2007, prices on wheat rose by eighty-four percent and corn rose up to sixty-three percent, making it even tougher on the average grocery shopper. With groceries costing more shoppers have to plan meals more carefully to make money count. Doubling the tax essentially means doubling the price on goods and services.

Consumers are greatly affected and as less and less goods are purchase, the economy will continually shrink. Doubling gasoline taxes gives little or no thought to the impact on rural residents. Outside of a handful of medium to large cities, most northern countries consist of hundreds of small towns, villages, and hamlets. Although most of Ontario is highly urbanized, more than twenty percent of its population lives in rural areas (Transport Canada, 2010). These rural and small communities are not well served by sustainable transportation options such as public transit or carpooling programs.

As a result of not having access to public transportation, they depend on their vehicles. It

may be many kilometers to the nearest grocery store, doctor’s office, hospitals, recreation facilities, and most importantly place of employment. Driving long distances for employment is routine life for most rural residents (Transport Canada, 2010). Driving up their cost of fuel would prevent them from accessing these necessities. This, in reaction, will drain monies that would go into the local economy and so have an adverse impact on quality of life.

Less money to spend on goods means less dollars spent in the economy. Regressive tax affects the lower scale in the economy. With an increase in gasoline prices, more and more people will not be able to afford gas. The majority of these people are lower class or middle-class workers attempting to earn a living either for themselves or for their family. In an article written for The Associate Press entitled Rising Gas Prices Have Heavy Impact on the Poor, the journalist explains that with rising gasoline prices, consumption will not rise as rapidly.

Analysts say, “Families living on fixed or modest incomes usually are the first to cut back. If prices continue to rise, other demographic groups expected to trim their gasoline consumption are young adults, who tend to have less pocket change than their elders”(2006). The effect of rising gasoline prices shouldn’t be viewed in isolation, said Carol Clements, chair of the National Fuels Fund Network, which provides emergency financial assistance to poor families that cannot pay their electricity or home-heating bills.

All of these energy costs are having a compounding effect,” she said. “We’re seeing more people bumped from middle and working class to low-income and poverty situations”(Associated Press, 2006). Doubling gasoline taxes will

not only affect low-class, rural citizens and workers but will adversely negatively creep up the hierarchical ladder towards middle-class workers. It is important to prevent this because the building of a strong middle-class will allow for countries to prosper for many years to come.

With the effect on rural and impoverished areas, corporate companies will also respond to the increase in gasoline prices. The negative effects accompanying doubling gasoline taxes will move upwards to large corporations. Wal-Mart Stores Inc. , the nation’s largest retailer, warns that it expects reduced sales throughout periods of increased gasoline prices from its least wealthy customers. (Consumer Affairs, 2005). Tom Schoewe, Wal-Mart's chief financial officer, said that Wal-Mart experienced a lot of stress because of the escalating price of fuel.

On one hand, trucking costs are rising and on the other customers have less money. An article in Consumer Affairs explains that higher gas prices will continue to cut into the pocketbooks of Wal-Mart's predominantly low-to-mid-income customers (2005). The impact of rising oil prices could also be seen in the Consumer Price Index. The CPI, which is a broad measure of retail prices and inflation, rose half of a percent, edging above Wall Street estimates, after having held steady in June (Consumer Affairs, 2005).

Wal-Mart is just one of many large corporations that experience a downfall in succession with increasing gasoline prices. To further exemplify the suffering of large corporations, today’s airlines can be used. There are many factors that contribute to airline problems and an increase in fuel cost is one of them. Canada’s largest aircraft carrier can be analyzed. Air Canada’s Airline said, “after reporting a $92 million first-quarter loss it

would mothball 27 of its most inefficient aircraft”(Associated Press, 2006).

The reasons for the unfortunate condition of the aircraft industry are clear. Although aircraft carriers are reducing costs where possible, high fuel prices and insurance costs, among other things, have combined with to produce an under-performing economy. Increases in fuel prices affect the airlines in two ways; the cost of fuel has an obvious and direct impact on the cost of operation, and fuel cost increases have repeatedly triggered economic recessions, which in turn result in a substantial decline in demand for air travel and air cargo (Associated Press, 2006).

Throughout history some economies have evolved faster and stronger than others. Policies that the government places on industries, technology and the environment can all affect the prosperity of an economy as well as the economies it interacts with. Of the factors that affect economic growth the industry of oil and gas is one that holds a stronghold in the international economy today. International effects of doubling gas taxes can have similar influences, if not worse, than, domestic negative influences.

The downturn of the Canadian domestic economy will greatly contrast with international economies that have not experienced a tax fluctuation. This contrast will further diminish the economy and greatly affect the Canadian employment sector. The diminishing Canadian economy in the international arena will lose a substantial amount of status, as seen in past examples. The increase of taxes will produce internalities as well as externalities that ultimately shift the international status of Canada.

Increasing gasoline taxes in Canada adversely affect the interaction of economies. With higher oil prices, oil-exporting countries hold the power. This might pressure these nations to become

more assertive or demanding of other countries in both political and economic ways. Essentially, doubling taxes for choice countries and not for others ultimately produces an uneven balance of power. Higher oil and gas exporting countries would be outweighed by the effect of higher prices on economic activity in the importing countries (Barron 2004, 184).

In some regions of the world, differences in fuel taxes between countries result in a significant level of cross-border purchasing of motor fuel. This is particularly true in Europe, where large differences in fuel taxes, combined with minimal or no border controls, encourage drivers to cross borders for the sole purpose of filling up their tanks with fuel (Barron 2004, 185). Some states, such as Luxembourg, Andorra, Gibraltar, have strategically reduced fuel tax rates to attract more cross-border fill-ups, which ultimately increase tax revenue (Barron 2004, 185).

Fiscal imbalances in oil-importing countries caused by lower income would be exacerbated in developing countries, like India and Indonesia that continue to provide direct subsidies on oil products to protect poor households and domestic industry (Barron 2004, 185). The burden of subsidies tends to grow as international prices rise, adding to the pressure on government budgets and increasing political and social tensions (Grabowski 2004, 578). This exemplifies how relationships will alter and dominate each other.

In reaction to an uneven balance of power, the economy on the lesser end will suffer. This essay has shown how the domestic consequences produce a shrinking economy. It is important to think about what will happen when that shrinking economy faces international trade with other stable and powerful economies. There will be less and less money to support businesses and

workers in the employment sector. Higher gas prices do not only produce unemployment on the domestic level but it additional penetrates into he international arena. There for, employment in the Canadian economy will greatly suffer.

In many cases, it was not until businesses reached international trade that they experienced difficulties and were forced to remove workers. On the domestic level, unemployment is cause by the inability to get to work because of the expense of gasoline prices. However, on an international level, the lack of interest in trade is what makes companies unable to provide an adequate working environment for all employees. Companies are adversely forced to lay people off. The loss of power and employment results in a loss of international status. Not solely a loss of economic status but international status in general.

Currencies would adjust to changes in trade balances that greatly determine the status of a country. Higher oil prices would lead to a rise in the value of the Canadian dollar (Grabowski 2004, 582). Oil exporters would invest part of earnings in Canadian dollar dominated goods and services. A stronger dollar would raise the cost of taking care of the debt of oil-importing developing countries, further worsening the economic damage caused by higher oil prices (Grabowski 2004, 585). With worsening fiscal imbalances, the pressure to raise interest rates would grow and business and consumer confidence will decrease.

With this lack of confidence, instead of pumping profits back into the global economy, exporters tend to save them. That means that the global demand will tend to fall. Investors consider putting their money in other sectors, which has a stimulating effect on the economy and

further causes a loss of status (Grabowski 2004, 585). This will further threaten the Canadian economy on an international level. Taxes make up the majority of the price of gas. “In June 2000, the retail price of gasoline rose sharply in many areas or North America.

With the stated intent of ‘helping consumers’, the legislature reduced the tax on gasoline by 7 cents a gallon on July 1,2000”(Barron 2004, 184). Since 2010 an estimated, forty-five cents a gallon was designated tax money (Barron 2004,185). This means that a lot of what citizens pay for gasoline is going directly to the government. More money going to the government is not a good idea as it has been shown over and over again that governments are not the best money managers. The question at hand is whether or not the government would put this new source of revenue towards useful projects.

Before the economic woes that entered the late twentieth, early twenty-first centuries, the number one priority for the North American economy was a green agenda. Ron Fanfair explains that a “green agenda involves economic sustainability and empowerment”(2008). When the economy is going well, people are more eager to listen to green agenda, and eager to be a participant in the prosperous economy. When the economy experiences a downturn, people are more concerned with jobs and the green agenda becomes secondary along with discretionary income.

Doubling gasoline taxes will produce an economic downturn. The assumption of doubling taxes would be that the money would be used for addressing environmental problems. This assumption is based of the fact that gasoline produces a copious amount of pollutants that are seriously affecting the

environment. There is no guarantee that the money would be put into programs that address climate change.

The majority will most likely go towards general revenues. What the government should be doing is addressing sustainable initiatives. Sustainable development initiatives have focused on managing rural resources rather than on addressing ‘brown’ environmental problems: urban or industrial pollution, sanitation and waste disposal problems”(Sick 2003, 313). An example of putting the money towards a greener agenda is the support of Rio Agenda 21. Agenda 21 calls on governments to adopt national strategies for sustainable development. These should be developed with wide participation, including non-government organizations and the public. However, it must be clarified as to what participation actually means.

Agenda 21 lays out what needs to be done to reduce wasteful and inefficient consumption patterns in some parts of the world while encouraging increased but sustainable development in others. It offers policies and programs to achieve a sustainable balance between consumption, population and the Earth’s life-supporting capacity. It describes some of technologies and techniques that need to be developed to provide for human needs while carefully managing natural resources. Agenda 21 puts most of the responsibility for leading change on national governments; this is where the Canadian government should be putting the gasoline tax.

Regardless, the Canadian government needs to work in a broad series of partnerships with international organizations, business, regional, state, provincial and local governments, non-governmental and citizens’ groups. The Rio Agenda 21 is just one example of where the taxation of gasoline needs to be going. Essentially, erasing the idea of a doubled gasoline taxes, perhaps even lower taxes means that there is more money for citizens to

invest and use. Citizens are the cores of the economy, which means that the economy as a whole will increase. The vulnerable Global North experiences a decrease in standard of living.

Transportation costs increase makes goods more expensive which contracts economy extracting money out of the economic system, which would normally go into buying goods. This adversely affects large corporate institutions. The domestic affects demonstrate how every action produces and equal or greater reaction. This is exemplified by looking at the international affects. Doubling gasoline taxes will produce an uneven relationship on the international stage, which will further lead to internal economic suffering demonstrated through loss of jobs.

It will further lead to an external economic status seen through a loss of status. It can be easily regulated by a strong central government and bank that makes adequate decisions to further prosper the country. Rising gasoline costs are a cause for concern in most households, and governments tend to react to this sort of situation. However, if they react with inappropriate policies, they can make things worse by simply prolonging the inevitable. For every action there is a reaction. Increasing gasoline taxes exemplifies this both on a domestic and international scale.

References

http://www.msnbc.msn.com/id/12424523/ns/business-autos/

http://attra.ncat.org/attra-pub/consfuelfarm.html

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