# How the household simulator works *Generated 2026-08-12 from the same source the page is built from, so this note and the calculator cannot disagree about a number.* ## What the page is trying to tell you If a tax is charged on energy, some things get more expensive than others. Not because of what they are, but because of how much energy it took to make them and get them to you. This page asks one question about every line of a household budget: **how much of this dollar is really energy?** ## The one number behind everything Every category carries a single number we call an **index**. **1.00 means average.** If the tax raises prices across the economy by 40 percent, a category at 1.00 also rises 40 percent. **2.00 means twice the average**, so it rises 80 percent. **0.50 means half**, so it rises 20 percent. That is the whole scale. The index is *relative* on purpose. We can say with confidence that beef is more energy-intense per dollar than a haircut. Saying exactly how many kilowatt-hours are in a dollar of beef needs national accounting data we have not pulled yet, and we would rather publish the comparison we can defend than a precision we cannot. ## Where the energy actually hides Most of it is not where you would look. A steak has almost no energy *in* it. The energy is in the fertilizer that grew the feed — made from natural gas — and the feed itself, and the animal converting that feed at a loss, and the refrigerated truck, and the refrigerated shop. By the time you buy it, the energy is four steps upstream and invisible. That is why you cannot answer this by looking at a product. You have to follow the chain. ## The fuel you buy directly: physics, not opinion Three lines of a budget are energy you buy as energy — electricity, heating and vehicle fuel. For those we do not estimate anything. A gallon of gasoline is a known quantity of energy. A therm is a known quantity of energy. A delivered kilowatt-hour is a known quantity of energy once you account for what was burned to generate it. Multiply by the tax rate, divide by today's price and the index falls out: - **Home electricity** — index **12.0**, about 375% on a price of $0.17 per kWh - **Home heating fuel** — index **21.1**, about 659% on a price of $1.6 per therm - **Vehicle fuel** — index **12.7**, about 397% on a price of $3.2 per gallon Those are large because a tax on energy falls hardest on energy. Nothing about that is surprising and nothing about it is a judgement call. **The consequence is the most important thing on this page.** Direct fuel is **51.4% of a household's tax burden** while being only **3.8% of its spending.** We can check that number a second way, from a completely different direction: household direct energy is about 28 percent of everything the tax is charged on and households carry roughly 77 percent of the total. 28 divided by 77 is 36 percent. Two unrelated routes, effectively the same answer. That agreement is the main reason to trust the page. ## The electric car, and why it is not a loophole A gallon of gasoline holds 35.3 kilowatt-hours of energy and always will. Electricity is different: today a delivered kilowatt-hour carries about 1.77 kilowatt-hours of primary energy because most of it is still made by burning something, and that figure falls toward 1.23 as generation stops burning things. The tax is charged on the primary energy either way, so **the same tax charges an electric mile less every year, while a gasoline mile never changes.** That is not a subsidy and not an exemption. Nobody is being let off. The electric car is simply drawing less energy per mile. The tax notices. **But it does not rescue the household this model is hardest on.** Set the page to a person living alone in a detached house with a long rural commute and the electric car is worth several hundred dollars a month to them — and they are *still* behind at the endpoint. The reason is that they have two separate exposures of roughly equal size: the miles, and a whole house heated and lit for one person against one dividend. **The car fixes one of them.** The other is fixed by insulation, a heat pump or a housemate. The model prices all three the same way it prices everything else. We are saying that plainly because it is the shape of the result. The design has a household it treats badly, the page will show it to you, and the lever it offers is real but not sufficient on its own. ## Households are not the only place energy is spent A tax on energy is charged on *all* of it. Not all of it reaches a shopper. Some is burned building things rather than making things people buy — a factory, a data center, a warehouse. That energy is taxed when it is burned, and the cost sits with whoever built the thing. It reaches you later, in the price of whatever the factory produces, or it never reaches you at all if the factory turns out to be a bad idea. Some is burned by government. Some is burned making goods that leave the country, and those are refunded at the border, so they are not really taxed at all. What is left is the share that lands in consumer prices this year, and it is roughly the share of the economy that consumer spending accounts for. **We put it at 77.0%.** The remaining 23.0% is carried by capital investment, by government, and by exports that get their money back. This is a genuine correction rather than a refinement. An earlier version of this page divided the whole tax across household budgets, which billed households for about **30 per cent more than they bear.** ## Everything else: ordered by judgement, sized by arithmetic The remaining categories are the honest weak point and we have tried to make the weakness small and visible rather than hidden. **We decide the order.** Beef above bread, bread above a bus ticket, a bus ticket above an insurance premium. That ordering is reasoned from how each thing is actually produced, and you can disagree with it — every index on the page is an editable box so you can put your own number in and watch the answer move. **We do not decide the size.** Once the order is set, arithmetic fixes the level. The average dollar has to come out at 1.00, because the average *is* the average. So there is exactly one scale factor that makes the whole basket balance and the page computes it rather than choosing it. Today it is **0.509**. This matters more than it sounds. It means we cannot quietly make everything a winner. If we push one category down, the arithmetic pushes the others up to compensate. - **Housing** — 0.06 - **Groceries** — 1.44 - **Groceries** — 1.06 - **Groceries** — 1.13 - **Dining out** — 0.66 - **Vehicle** — 0.31 - **Vehicle** — 0.03 - **Vehicle** — 0.63 - **Healthcare** — 0.36 - **Goods** — 0.81 - **Services** — 0.26 - **Air travel** — 1.41 - **Everything else** — 0.59 ## Two different budgets, doing two different jobs There are two sets of budget shares in this model and confusing them was a real mistake we made and corrected. **What the average American dollar is spent on.** This decides what "average" means, so it is what balances the basket. It comes from the national accounts, which count the whole economy — including the rent a homeowner effectively pays themselves and the medical care an employer or the government pays on your behalf. **What a household actually writes checks for.** This pre-fills the form when you arrive. It is deliberately different, because you do not write a check for your own imputed rent. The two disagree by about a factor of two on housing and on healthcare, in *opposite* directions. Using the household version to define "average" would also force every household to come out average, which would erase the entire point of the calculator. ## What is still weak, stated plainly **The ordering of the non-fuel categories is reasoned, not measured.** Replacing it with a proper input-output pull is the main outstanding job. That is a data exercise rather than a research question: national statistics already publish who buys what from whom, which follows the fertilizer-to-feed-to-steak chain automatically. **The food numbers rest on the shakiest single input** — how much national energy use to attribute to growing and processing food. Everything about food on this page moves if that figure is wrong. **One effect of the tax is deliberately not in the ordering**, because no economy-wide data set can see it: a second-hand car carries an index of zero, since the tax is charged once when energy is burned and never again. That is true of durable goods generally. **And one thing we got wrong and have corrected.** An earlier version of this note said fertilizer could be made with cleaner electricity and would therefore be taxed less, so food costs might fall over time. That is what a *carbon* tax would do. This is not a carbon tax. Making ammonia by electrolysis takes **more** energy than making it from natural gas — roughly 36 to 43 gigajoules a tonne against 30 to 35 — so under a tax on energy content it pays about 17 per cent **more**, not less. That is worth saying plainly because it cuts against the design as easily as for it. A tax on energy does not pick low-carbon winners. It prices energy, and sometimes the low-carbon route uses more of it. The reductions genuinely available in fertilizer are the ordinary ones: better plants, and using less nitrogen per bushel, since crops take up only about half of what is applied. ## How to check us Change the numbers. Every index is editable and the answer recomputes. If you think groceries should be 3.0, type it in. If the conclusion you care about survives your numbers as well as ours, it is probably about the design rather than about our guesses. The one thing to watch as you do it: the balance condition. Push the big categories up and the tax has to come from somewhere so something else must come down.