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?