Wednesday, May 12, 2004

What your government can REALLY DO to help you!
By Lowering Gas Prices
Part1:Near Term

Bless my soul and will wonders never cease: At least ONE state government seems to actually care about their constituency! Florida has passed a cut in the state gas tax.

I know there just HAD to be some who questioned this move, given the tight state budgets that are all the news these days. I have little doubt that the liberal mantra of “how will we pay for this tax cut?” MUST have been heard.
OK, time for a little review of Econ101:

Say I sell sprockets. I have just expanded my growing business into the new sector, creating new jobs in my office and warehouse space-station. My competitor, a division of GatesCo has previously enjoyed an exclusive position in this sector’s market. They distribute the technically inferior Cogswell Coggs, a company they acquired in a take-over to gain some market share after several abortive attempts in internal development of the MicroGears line. Cogswell had spent years spreading themselves throughout the known galaxy but suffering quality and production capacity problems that have led to the lowest customer satisfaction rating in the history of manufacturing.

I, having seen an obvious need, and having used Spacely Space Sprockets for years, have decided to quit working for someone else and strike out on my own. Spacely, a small start-up founded by an ex-GatesCo salesman and several professors at the University of Phobos, has a vastly superior production system making maximum use of automation and highly paid operators. They produce superior sprockets at lower cost, through maximizing capital investment and human expertise. (Well, actualy BEING expertise, given the new factory in JarGon Prime…) GatesCo, in contrast has bloated manufacturing costs based on old tech, a pitifull distribution network and a management structure that even the kindest observer would call draconian. In order to maintain Spacely’s quality, the company has ramped up production capacity on a very controlled basis. (Hence the new JarGonian venture. Having five arms and two brains makes multi-tasking seem an inadequate description.) From the very beginning, the founder has based his distribution channels on independent contractors, capable of individualized market expertise and personalized customer service.

I grew up in this sector, and worked for several decades in the area before getting married and moving to Sol System. Now, I am anxious to move back and start my new venture. I have a crack sales team, expert logistical experts and an IT staff that is unrivaled. The seven of us plan to take a big bite out of GatesCo’s local market.

How, you may ask? GatesCo has a total lock. 100% market share. They have the highest mark-up and thus profit-margin ever known in human history. They can out advertise us 8-to-1.

Simple, I have a superior product, unbelievable customer service, and I can under-cut the GatesCo price, in spite of the fact that my per-unit price is higher than the competition. Crazy? NO. As I gain customers with my lower price, I win them forever with my quality and customer support. And I make up the individual per-unit margin in VOLUME.

GatesCo sells 1000 units at 500credits/ea. = 500,000 credits
– cost of 400,000 (400credits ea.)
– 100,000 profit
MeCo sells 3000 units at 200credits/ea. = 600,000 credits
– cost of 450,000 (150credits ea.)
– 150,000 profit

I sell more product, for a lower price and a lower profit margin and derive more net revenue.

Ok, back here on Earth ;-)

The stated goal of the Greenies is to reduce gas consumption. They don’t like SUVs because they use too much fuel. They want everyone to drive a Geo Metro, or better yet a Honda Prius (God Bless America!), or EVEN BETTER ride a bike to work at the local CoOp…

This, of course, is diametrically opposed to the motivating factor of government officials. Be that as it may, higher gas prices are, just as the Greens wish, going to reduce gas consumption. I have already heard one acquaintance mention she only purchases $10 of gas at a time. The price fluctuates so wildly of late that she doesn’t want to miss any change in her favor. Sort of dollar-cost-averaging for commodities instead of investing. I myself am giving serious consideration to purchasing a bus-pass and riding a percentage of the days this summer. This because I feel that the pass will more than pay for itself in fuel-bill savings, given the price increases. My point is, peoples behavior is being affected, and it is going to cause usage to go South.

While I have my doubts about some legislators themselves, they at least should have aides that can do the math. This is the type of word question that I WISH was on elementary school tests. Give the kids a lesson in governmental fiat in addition (so to speak ;->) to their mathematics.

“How much of the price I pay at the pump is taxes?”, you ask.

Let’s say you live in Ohio. Unluckily for you, according to this article, your bureaucrats just don’t get it.

Scrolling down to the seventh paragraph we get the straight poop.

18.4cents goes to the Feds. 24cents to the state. That’s $.42.4 of every gallon to taxes. If you are paying $1.89.9 that’s 22.3%. At $2.00 it drops to about 21%, about the only good thing, it’s flat-rate, not “progressive”. According to the article, you Buckeyes are going to be paying $.26/gallon if the legislature has it’s way.

If you live in Cinci. Or my birthplace of Portsmouth, you can cross the river and pay only $16.4 a gallon in Ken-Tuk-Kee, but the next paragraph warns that may be on the rise. My acquaintances that live in Ohio and drive over to Fr. Wayne to work can fill up in Lincoln’s birth-state and only pay $.18 extra to the state coffers.

I won’t bother with the math, it’s a flat-tax. Reduced consumption results in less state ‘revenue’ no matter how you look at it. In that respect, it is worth mentioning, there is much I like about gas taxes. It is both a usage tax and a flat tax, two of my favorite things. The fact that I had to explain how much of the price at the pump is taxes points out what I don’t like. I have some ideas on the hidden aspect, but that will be the subject of a further discussion… ;-)

So, what to do if you are the state revenuer? Make it up in VOLUME (literally!). Lower the tax, maintain consumption and at least minimize your revenue issue. If you actually increased consumption…

As my my oldest friend discussed the entire idea of tax-cuts is something all politicians seem incapable of considering. Still despite all indications to the contrary it could happen.

But I’m not holding my breath.

As to actually INCREASING the tax burden at a time like this, that’s kind of hard to digest.

And you know the result of indigestion…



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