Monday, December 15, 2008

it's time to raise the gas tax

Michael Kinsley states the case better than I could. Everyone is dissing the US auto makers these days because they haven’t been making fuel-efficient vehicles. Well, that is because the price we pay for gasoline has been cheap (the REAL cost has been high – but consumers haven’t been paying the REAL cost, including the harm to the environment and national security). The cheapest oil has EVER been was in 1998, when it averaged $11.91 for the year (around $16 in current dollars). (The average price since World War II – again, adjusted for inflation – has been around $25.) Cheap gas is the market’s way of saying, “Party on, Wayne!” Unlike Europeans, Americans have never been willing to support policies that would keep gas prices high to encourage conservation and the development of alternative fuels. (The price of gas in Europe has generally averaged three or four times the price in the US – with the difference consisting of high gas taxes.) You don’t need a government mandate for the auto companies to make fuel-efficient vehicles – you need high gas prices.

As Kinsley proposes, make it revenue neutral. Every cent of the gas tax offsets payroll taxes. (With all of Bush’s massive tax cuts we couldn’t afford, NONE of it went to reduce payroll taxes – the taxes that really affect working Americans.) Economists are fond of saying, “If you want more of something, subsidize it. If you want less of something, tax it.” We want more jobs and less oil use. So tax oil and reduces taxes on employment.

Duh.

Thursday, Dec. 11, 2008
Black Gold: It's Time to Raise the Gas Tax
By Michael Kinsley

The only good economic news lately has been the collapse of oil prices. At the beginning of July, just five months ago, the price of a barrel of was more than $140. By the beginning of December, it was down to about $45. That's a drop of more than two-thirds. In the U.S., we consume about 15 million bbl. of crude a day. The saving of $95 per bbl. adds up to more than $500 billion a year. That's big — enough to bail out the auto industry 15 times.

Of course, we've been through this before. The price of oil shoots up; we start using less; reduced demand sends the price down; we start using more; pretty soon it's shooting up again. This time, though, it does feel different. It seems as if Americans have made a real and fundamental commitment to consuming less energy. That is not so much out of idealism as it is the good side, for a change, of our short attention span. When the price of gasoline shot past $4 per gal., it was both shocking and reassuring. Economists had long wondered what price it would take to get our attention. This, at last, was it. Yet $4 gas turned out not to be the end of the world. Although it was devastating for some people — and it surely accelerated our plunge into recession, which is affecting all of us — we adjusted more easily than one would have thought possible. And we kept on adjusting, even as the price of oil plummeted.

Will this change in behavior last? Or will we return to our wastrel ways as we climb out of recession and the reality again sinks in that gas is cheap? The one sure way to prevent this second scenario from happening is not to let gas get cheap again. Yes, this is yet another plea for that hoary notion: a big energy tax. Just five months ago, we were essentially paying a tax of $95 per bbl. That's the difference between what oil cost then and what it costs now. This was a "tax" whereby the revenue went into the pockets of oil producers — about two-thirds of them foreign countries and one-third fellow Americans. Isn't there something better to do with the money?

This idea always comes up and never goes anywhere. That's partly because of our general loathing of taxes and suspicion of Washington and partly because the idea tends to come up when energy prices are rising and people find it hard to believe that it would be good if they rose even more. But a couple of things are different
now. First, we have experienced the high energy prices that people in most of the rest of the world already live with, and we know we can live with them too. Four-dollar gasoline is no longer unthinkable.

Second, this is the perfect moment for the other part of many proposals for an energy tax, which is to give the money back to people by lowering the payroll tax. The payroll tax, or FICA, collects about 15% of your wages or salary — half from you and half from your employer. It is expected to bring in close to a trillion dollars in 2009. Using our windfall from plummeting crude-oil prices alone, we could cut the FICA tax by more than half. Including other forms of energy would bring in even
more.

FICA is, in effect, a tax on job creation. It applies to the very first dollar earned by a minimum-wage worker, but most of it tops out at an annual income of about $100,000 and doesn't apply at all to income from investments. For most Americans holding jobs, FICA now takes a bigger chunk of their income than the income tax itself. And yet it rarely enjoys the tender concern of tax-cutting Republicans, who prefer to concentrate on tax breaks for capital gains. Cutting the FICA tax in half, for workers and for employers, would make it more affordable for employers to hire — or avoid layoffs — while giving everyone who makes less than $100,000 a 7.5% raise to spend and stimulate the economy even further. People making more than $100,000 would get a tax cut too — as big as anyone else's, though a smaller percentage of their incomes.

One argument against all this is that FICA finances Social Security payments, and the connection between money in and money out helps keep Social Security secure.
There's a simple answer: among the many problems we now face, the danger that a
majority in Congress will gang up against Social Security benefits must surely rank low.

It comes down to this: in the terrible storm of economic misery, we suddenly have a half-trillion-dollar windfall. As unemployment heads toward double digits, we can use this found money to encourage people to create jobs, or we can use it to encourage people to use more gasoline. It's a pretty easy choice, don't you think?

8 comments:

John Nicholas said...

A higher gas tax would definitely help push drivers to buy more fuel efficient cars as seen with the earlier price spike. But how do you keep that from causing massive inflation through the rest of the economy because of increased shipping prices? The biggest concern would be food prices.

Woozle said...
This comment has been removed by the author.
Woozle said...

A gas tax makes sense overall, but from the point of view of individuals with a very limited budget (such as me and my family), the collapse of gas prices back to pre-Katrina levels didn't come any too soon -- and I suspect it is serving for many people as a desperately-needed economic stimulus at the moment.

(For example: as a computer maintenance/repair tech, after the prices collapsed I have found myself far less reluctant to drive out to a client's site to check on things -- resulting in more paying work for me and better service for the client.)

I think this could work, though, as part of a carefully-planned and staged program -- something like this:

First, the carrot: Provide (more intensive) incentives for development and distribution of alternative technologies -- electric vehicles, home solar, mass transit, batteries, hydrogen -- so the alternatives become available and affordable. Provide (more) tax-breaks for individuals who offload old, wasteful tech (gasoline & diesel engines) and for reducing use of grid power. (And, hey, how about tax incentives for locally-grown food? Reduce dependence on transportation for the most vital parts of the economy, and it won't matter as much if transportation costs more.)

Next, the stick: As the alternatives become more affordable and hence more feasible, start ramping up taxes on fossil fuels (call this the "what's your excuse?" tax) -- use these taxes to pay back the earlier expenditures promoting alternative tech -- and taxes on fossil-fuel-burning engines (with a big chunk as a transfer tax: most people apparently feel compelled to buy a new car every 5 years or so; those of us who continually "recycle" our cars by repairing instead of replacing should get some reward for this, seems to me) and any tech known to be less sustainable.

Re John Nicholas's question: I assumed you were proposing a gas tax as mainly a consumer-auto thing, not a commercial-trucking thing. For that matter, most trucking uses diesel, and diesel prices haven't come down as much... but a similar program could be applied there as well.

Since much of the benefit of electric and gas-hybrid tech comes from recovering kinetic energy through regenerative braking, shouldn't it work especially well with larger vehicles? I don't know what work has been done along these lines, however. One hears talk of hybrid buses and hybrid trucks, but what are the efficiency gains like?

Doug S. said...

A gas tax makes sense overall, but from the point of view of individuals with a very limited budget (such as me and my family), the collapse of gas prices back to pre-Katrina levels didn't come any too soon -- and I suspect it is serving for many people as a desperately-needed economic stimulus at the moment.

That's why the other half of the proposal is to cut payroll taxes; you pay the taxes at the gas pump instead of before you get your paycheck.

Woozle said...

That doesn't work so well for those of us who live off-payroll (I do independent computer consulting and online sales).

Whatever plan does go into play needs to be made without the assumption that the people who need it most get their incomes via traditional employment, I should think.

Tom Craver said...

Americans certainly aren't going to go for a gas tax if you pose it as a punishment, meant to drive down their consumption.

People would accept a modest tax on gas if it were positioned as preventing the oil speculation that appears to have exacerbated market prices. 10% feels about right.

Use the revenue to build up a large reserve of oil/gas that will be sold automatically when prices start shooting up, bought back when prices fall - damping out supply shortfalls and excess.

With that as the primary goal, people would accept secondary goals of saving some oil for the future and reducing CO2.

Once the reserve is built, use excess revenues in whatever way reduces CO2 most for the least cost, which probably means subsidizing the cheapest, highest efficiency cars - whether or not they're hybrids or electrics.

Jumper said...

Interesting. The give-back payroll reduction might make it politically feasible.

My own thought is move from a cents-per-gallon tax to a percent tax. For reasons I think are obvious. And I'd sure include diesel.

North Carolina is floating a concept to tax MILEAGE at yearly inspections. I think this is almost an "anti carbon tax" in its stupidity. It will move more freight onto the asphalt instead of back to rail, and it's a regressive tax, and it's not as hard on guzzlers, and it eliminates some consumer desire for advanced carbon composites, and has other downsides.

I'd pay a higher percentage tax. I say "bah" to this mileage tax proposal.

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