China and U.S. GDP and the Price of Gas

China has started to alter that system, but it remains largely intact. That means that the country can continue to supplement a critical factor in a way that will continue to help expansion — a system that is nearly opposite the one in the United States. And that puts America at a substantial disadvantage.

According to Bloomberg:

Retail price adjustments will be based on the average cost of a basket of crudes over 10 working days, down from 22 days previously, and a threshold for triggering a revision will be abolished, the National Development and Reform Commission said in a statement on its website yesterday. The NDRC also cut gasoline and diesel prices for the first time in four months, effective today.

The new program should help match prices of oil more closely to refining costs, which in turn should help improve the margins at China’s refineries. However, the ability of the People’s Republic to underwrite gas prices remains largely unchanged.

Bloomberg also reports that the price of a gallon of gas is $4.74 in China. One of the reasons the government regulates gas prices is to curb inflation.

Contrast that system to the one in the United States and the disadvantage of the American system when it comes to possible economic stimulus is starkly clear.

The federal gas excise tax per gallon is 18.4 cents. State and local taxes average 31.1 cents per gallon. In some large states, the sum of the two is much higher, as much as 69 cents in California. AAA’s Daily Fuel Gauge report shows the price of a gallon of regular nationwide is $3.658. Imagine the economic benefit if all taxes were subtracted from that.

The ability of China’s central government to cap gas prices is critical to the maintenance of high GDP growth. The same can hardly be said in the United States. Federal and state authorities continue to make the case that they need the tax revenue. On the other hand, the taxes are oppressive to the extent that American gross domestic product is hindered by them — at a time when economic activity desperately needs a boost.