A Golden Opportunity for a Higher Gas Tax

Charles Krauthammer burnishes his credentials as a member of the Pigou Club with a cover story in the January 5, 2009 edition of Weekly Standard, titled “The Net-Zero Gas Tax: A Once-in-a-Generation Chance.” (Hat tip: Jonah Goldberg.)

The Pigou Club Manifesto was Greg Mankiw’s call in October 2006 to increase the gasoline tax significantly, thereby encouraging more fuel-efficient cars, reducing pollution, reducing oil consumption, and reducing the amount of money we send every year to oil-producing countries that hate us. His specific idea was for a $1 gas tax phased in over a decade, which seemed radical then but now sounds like it would barely get anybody’s attention.

Krauthammer dispenses with the phase-in and calls for an immediate $1 a gallon gas tax increase, offset by reducing other taxes so that the overall effect is revenue-neutral (thus the Net-Zero in his headline). The beauty of a gas tax is its simplicity, although there might need to be various offsets and exceptions to make such a system palatable. Krauthammer:

But whatever one’s assumptions and choice of initial tax, the net-zero tax swap remains flexible, adjustable, testable, and nonbureaucratic. Behavior is changed, driving is curtailed, fuel efficiency is increased, without any of the arbitrary, shifting, often mindless mandates decreed by Congress.

This is a major benefit of the gas tax that is generally overlooked. It is not just an alternative to regulation; because it is so much more efficient, it is a killer of regulation. The most egregious of these regulations are the fleet fuel efficiency (CAFE) standards forced on auto companies. Rather than creating market conditions that encourage people to voluntarily buy greener cars, the CAFE standards simply impose them. And once the regulations are written–with their arbitrary miles-per-gallon numbers and target dates–they are not easily changed. If they are changed, moreover, they cause massive dislocation, and yet more inefficiency, in the auto industry.

CAFE standards have proven devastating to Detroit. When oil prices were relatively low, they forced U.S. auto companies to produce small cars that they could only sell at a loss. They were essentially making unsellable cars to fulfill mandated quotas, like steel producers in socialist countries meeting five-year plan production targets with equal disregard for demand.

As Krauthammer notes earlier in his article, the federal gasoline tax in America is 18.4 cents per gallon, while in England and much of Europe the gas tax approaches $4 per gallon. (Hmmm… I wonder why people drive smaller cars in Europe than in the U.S.?) A higher gas tax makes sense on so many levels. But given the car lust that seems to be part of the DNA of so many Americans, I’m not holding my breath waiting for it.

5 thoughts on “A Golden Opportunity for a Higher Gas Tax

  1. I had a big problem with the gas prices in July, because the additional money was going to countries that hate the U.S. I would have no problem with (and in fact support) a higher gas tax that would go to the U.S. government, and be offset by reductions in other taxes.

    And as Mankiw states in his Manifesto:

    “A basic principle of tax analysis — taught in most freshman economics courses — is that the burden of a tax is shared by consumer and producer. In this case, as a higher gas tax discouraged oil consumption, the price of oil would fall in world markets. As a result, the price of gas to consumers would rise by less than the increase in the tax. Some of the tax would in effect be paid by Saudi Arabia and Venezuela.”

  2. I don’t think Americans have “car lust”. Well, Americans other than me and my car-enthusiast friends, anyway. But we don’t support EVERYONE driving around all the time, and would in fact like to remove a number of people from the roads (the near-blind elderly, idiots who smoke, eat breakfast, text on their phones, apply their makeup, all while driving with the their left hand dangling over the top of the steering wheel). Personally, I would like to see a graduated licensing system requiring much more extensive training, and re-testing after initial licensing.

    Instead, America lets anybody – ANYBODY – have a driver’s license, while lobbyists from the AARP and illegal alien groups make sure their clients’ “right” to endanger the lives of others does not get infringed, and the only solution American politicians can find is to create more laws and stiffen penalties.

    I think perhaps you are insulated, living in New Jersey. You drive to the train station and ride to work. When I worked in downtown Nashville, I drove my 1963 Corvair to the neighborhood bus station and rode to work. But for the past four years, I haven’t worked downtown, and there are NO public transportation alternatives between home and work for me. So I drive my 16′ long, 4,000-lb. Jaguar sedan everday, getting an average 18.3 MPG (I could drive the Miata, but the racing suspension makes for a miserable commute). Of course, when the weather allows, I commute on my Yamaha motorcycle, getting 50 MPG and big grins in the process. But even Nashville has winters. And if I could take the bus or train to work, I would, if for no other reason than to avoid dealing with the lowest common denominator of driving skill using the roads.

    Outside of New York, Boston and Chicago, most Americans have to drive to work. And to the store. And take the kids to soccer/basketball/football/hockey/baseball/lacrosse practice. And to church. And then there’s vacations.

    It’s no different in Canada, Mexico, or any European country. The big-city-dwellers get to enjoy a wealth of public transportation options. Those in surburban or rural areas live just like their American counterparts: By the car. We usually don’t see it, because tv shows and news coverage are centered on urbanites, just as they are here. And when we Americans travel to Europe, it’s typically on business, in the cities. Think of Europeans or Asians watching Friends and traveling to New York on business. They think all of America is like Manhattan and can’t understand our car fixation.

    As for the size of cars, we simply have more room here. Our roads are wider, our buildings are further apart., etc. Plus, we (okay, those of us outside of Jersey) spend more of our time commuting on interstates than Europeans, so we have higher federal standards for crash-worthiness. You want to know why we don’t have “kei-class” cars like Honda’s brilliant City and Today? Thank Ralph Nader and the NHTSA.

    If you visit rural England, they drive Range Rovers too.

    Yes, some of the countries supplying us oil hate us. Some of them would collapse without us (Hugo Chavez, are you listening?). But our two biggest suppliers are Canada and Mexico. The former makes fun of us, and the latter sponges off us. But I think we would miss them.

  3. You are a conservative? Dang…if this is conservatism, then, well, we need more of them!

    Seriously, I am on the other side and I actually like your idea.

  4. Ollie, it’s not my idea, it’s Krauthammer’s — one of my favorite conservative pundits. If you’re looking to be exposed to thoughtful people from the other side of the aisle, Krauthammer would be a good choice.

    Chris, I have no problem with the existence of big cars, SUVs, etc. I just think the gas tax has been artificially low for decades. Conceptually, the gas tax really ought to be high enough to cover all government costs that are caused by the use of gasoline-powered vehicles. In other words, all (or virtually all) road construction, repair and maintenance; all traffic enforcement and auto inspection costs; some pollution abatement costs, etc.

    Yes, I realize that increasing the gas tax will have a greater impact on people in states with more elbow room than it will on me in New Jersey. But if the gas tax has been inappropriately low, as I contend, it means that people who drive less have effectively been subsidizing people who drive more.

    The impact of the transition to higher gas taxes could be mitigated somewhat by a partial credits for miles driven in commuting to work, for example. But the whole point of a gas tax is to give people an incentive to drive less, and to choose more fuel-efficient vehicles. Unlike the Rube Goldberg CAFE standards, a gas tax would actually work.

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