Here’s How to Profit Off “Gas Taxes”

Gas Taxes

Now, here’s a silly idea. States raise extremely high amounts of capital by taxing gasoline. Look at the state-by-state per-gallon gas taxes that each uses to fund infrastructure. 

US Gas Taxes by State

Two states are already moving to suspend their gas taxes while WTI and Brent crude hovers above $115 per barrel. Keep in mind they use this money to pay for the maintenance of their roads and other vital infrastructure. 

By suspending their taxes, they’re effectively eliminating this revenue stream. Whether or not you’re for or against these taxes isn’t essential. With this revenue stream drying up, it creates a HUGE number of problems.

The Issues of Suspending Gas Taxes

The first is the most obvious. States won’t have the money they need to maintain their roads. Perhaps that’s why several trucking associations are opposed to the suspension of the taxes. Even though they will save money for a short period, truckers will face the threat of potholes and other problems on the road. In essence, this hurts the people it’s supposed to help. 

There’s another group of people who will struggle. Consumers. The suspension of these taxes or the passage of bills to send state or Federal stimulus checks to help people “afford” gasoline creates another economic problem. Remember, oil and its byproducts like gasoline operate on supply and demand. 

Lower the price of something – and you’ll get more demand. Gasoline is an inelastic good, meaning people will pay whatever they have to because it’s necessary. Even so, you can anticipate that demand will be higher when prices are lower. So, that might fuel an increase in short-term demand and push prices… higher.

Then, states will have to impose the tax later, creating new problems for household budgets. This isn’t a well-thought-out plan, and it’s further evidence that people in politics don’t understand economics. In 2011, one of my favorite studies found that eight out of 10 politicians have no background in economics. They prove it every single day. 

Who Wins?

So, the question is who wins out of this situation. Remember, if gas taxes are removed, demand can get a bump. So the real winners – despite all of this demagoguing that we’re seeing – are oil producers. 

The ones with the most upside are the vertically integrated companies that move oil through the entire supply chain and never switch hands. Enter Exxon Mobil (XOM) and Chevron (CVX). Exxon is currently sitting at around $84 per share. There’s a very bullish case that XOM hits $95 by May. 

It’s so absurd that the people that Congress aims to help actually end up hurting and the people that Congress demagogues will be the big winners in this whole debacle. That’s politics.

Garrett Baldwin
Garrett Baldwin
Garrett Baldwin joined Godesburg Financial Publishing as Chief U.S. Markets Analyst in early 2021. A Johns Hopkins-trained Economist, he’s worked with hedge funds, venture capital firms, angel investors, and economic advisors to the U.S. government. Baldwin specializes in market anomalies and alternative investments. He’s written extensively on momentum, value, insider buying, and other unique strategies that provide investors that elusive edge.
Garrett Baldwin
Garrett Baldwin
Garrett Baldwin joined Godesburg Financial Publishing as Chief U.S. Markets Analyst in early 2021. A Johns Hopkins-trained Economist, he’s worked with hedge funds, venture capital firms, angel investors, and economic advisors to the U.S. government. Baldwin specializes in market anomalies and alternative investments. He’s written extensively on momentum, value, insider buying, and other unique strategies that provide investors that elusive edge.

Related Articles