Saturday, January 24, 2009

Raise the Gas Tax (Updated)

[January 24, 2009]

My idea of a variable gas tax (see below) was not original and when I started this post it seemed to have no chance of survival.
But look how the notion has grown.
Today I came across the FORA video and knew it was time to bring the post up to date once again.

[December 28, 2008]

When I started this post November 17 the idea was shocking but obvious. Gas prices had fallen so quickly no one could believe it had really happened. Everyone, including me, had gritted their teeth, complained, and rolled our eyes so long getting used to high gas prices the new, painful higher prices were finally getting accepted as a new reality. Then all at once, WHAM! We woke up one morning and could fill the car for less than going out to a movie. It was like winning the lottery.

I had been joking about paying more for bottled water than for gas -- and complaining that the gas cost too much! (Pretty stupid, huh?)

Before we had a chance to forget, the Washington Post and a couple of other places advanced the reasonable suggestion that NOW is the logical time for a gas tax. Taxes are never popular, but they are easier to pay when the need is clear (highways, schools) or to assuage the pain of sin (tobacco, alcohol).

[November 17]

Those of us old enough to remember the gas shortage of the seventies remember well how quickly America returned to gas-guzzlers after flirting briefly with the notion of more economical cars with good mileage. We can blame Detroit all we want, but they were only producing what Americans wanted.

Recently when the prices went out of sight the response was dramatic. Behavior changed and the price of oil has fallen low enough that gas is back below two dollars. I don't know how the politics can work, but it is clear that while recent gas prices are fresh in memory no one would flinch at a price jump at the pump.

This is from the Washington Post. The logic is too clear to ignore...

THE PRICE OF crude oil closed at $57.04 a barrel on Friday. That's about $90 cheaper than it was in July. The average price of a gallon of regular gasoline Friday was $2.15, nearly $2 less than it was in July. This is definitely good news for the battered American consumer. But we fear that the temptation to return to gas-guzzling vehicles, to drive more and to forget the painful lessons learned last summer will be too great to resist.

Our concern is hardly unfounded. As Post-Newsweek columnist Robert J. Samuelson wrote in his Oct. 29 column, "We've seen this movie before." A gas crisis leads to widespread calls for conservation, fuel-efficient cars and greater reliance on alternative sources of energy to help slip the yoke of imported oil. Then, as happened after the 1970s gas crunch, amnesia sets in the moment prices fall. One of the best ways to prevent a rerun is to raise the federal tax per gallon of gasoline. Mr. Samuelson made a worthy suggestion: Raise the gas tax a penny a month for 48 months.

In a perfect world, we'd like to see a gas tax that was the equivalent of oil at $100 per barrel. This would send a loud-and-clear signal to drivers to continue eschewing gas guzzlers for fuel sippers and mass transit. Automakers would get the message to speed up production of motor vehicles that meet or exceed the 35 miles per gallon by 2020 mandated by Congress last year. Instead of the money going to countries that have U.S. interests at heart in the same way a dealer cares about a junkie, the revenue would stay here -- and it could all be returned to the American people in the form of tax rebates.

Okay, we know that the world isn't perfect and a lame-duck Congress and president aren't going to make the tough but necessary decisions on energy independence: That will fall to President-elect Barack Obama. As he puts his administration together and considers his priorities, he faces the choice of playing it safe with incremental steps or going bold with dramatic action when he assumes office on Jan. 20. We urge Mr. Obama to take the latter course. The United States cannot afford to backslide to its voracious, polluting ways as it did in the 1970s.

Gregg Carlstrom is a journalist and freelance photographer currently based in Washington, D.C. He picked up the same idea this morning. [November 17]

It's a simple idea: use a variable tax to keep gasoline prices at a minimum level (say, $4.50 per gallon). When prices are below that level, the tax money goes into a fund that pays for mass transit, next-generation cars, etc. And when prices climb above the floor, the tax disappears.

Obviously the tax would be unpopular in the short term. But it would provide much-needed revenues for upgrading our energy infrastructure — and it would remind everyone that, although they might fluctuate for a time, oil prices will inevitably continue their upward march.

It's good that Obama recognizes the pattern of our oil addiction — will he do something to break it?

[December 28]

Charles Krauthammer adds his voice to the conversation calling for a "net-zero" gas tax. This elegant idea is to create a hybrid tax stimulus, if we can borrow a term from the car people, by swapping income tax for gas tax. The "net zero" feature is really a sugar pill PR locution aimed at misleading people into believing that the amount they pay for gas will more or less equal the amount of income taxes they might otherwise pay if the shiny new gas tax is not approved. Good sales pitch, if you ask me, although if you look at it too close it reminds me of a cross between a politician and an insurance salesman.

Nevertheless, I do like the idea.

Here is how it works. The simultaneous enactment of two measures: A $1 increase in the federal gasoline tax--together with an immediate $14 a week reduction of the FICA tax. Indeed, that reduction in payroll tax should go into effect the preceding week, so that the upside of the swap (the cash from the payroll tax rebate) is in hand even before the downside (the tax) kicks in.

The math is simple. The average American buys roughly 14 gallons of gasoline a week. The $1 gas tax takes $14 out of his pocket. The reduction in payroll tax puts it right back. The average driver comes out even, and the government makes nothing on the transaction. (There are, of course, more drivers than workers--203 million vs. 163 million. The 10 million unemployed would receive the extra $14 in their unemployment insurance checks. And the elderly who drive--there are 30 million licensed drivers over 65--would receive it with their Social Security payments.)

I give him credit for having the nerve to pull FICA taxes into the discussion. That is one part of our tax code that even in the most heated of debates remains unmentionable. The annual cap on FICA earnings is the best-kept secret in America and if I understand Mr. Krauthammer's suggestion that sacred cow would live unmolested. In fact, it would have the effect of LOWERING that cap instead of raising it in the face of the Social Security "Insolvency" Terror. That's what I call chutzpah.

But all in all I like the idea for political and practical reasons and want to give it a push.

In fact, Mr. Krauthammer, I'll see your "net-zero" gas tax and raise you one better.

What about a Variable Rate Gas Tax with the rate pegged to the market price of crude oil. In this way consumers would have a cushion against market spikes, the retail marketplace would still have spirited competition, and with the passing of time the federal treasury would not be stuck with a "net zero" increase but a chance at an improved gas tax revenue stream.

If you really want to move things along, put that in your tank and burn it.

A Variable Rate Gas Tax aimed at keeping the retail price of gas more predictable for the consumer could be adjusted at whatever interval seems politically most feasible: weekly, monthly or quarterly. As in the case of indexing for other purposes, it could be based on the trailing average market price of oil or any other factors the Congress needs to add to make it through the system.

We saw with a six hundred billion dollar bailout package (Remember? That was the original request.) that after Congress added another one hundred fifty billion dollars of lipstick the final total swelled to seven hundred fifty billion.

We cannot predict how the Gas Tax Pig might come out as sausage, but I still think it's time to feed it into the grinder.


Anonymous said...

The suggestion to tax gasoline so the price remains steady is a good idea but how would it work in practice? There are so many gasoline outlets with many suppliers, all potentially having a different view of how much of the cost is tax and how much is cost/profit. It can probably be worked out but I have not personally seen the practical solution.

Hoots said...

Good point. I simply grabbed the notion for the blog before it got away.

One possibility would be a variable tax/surcharge pegged to the moving average of the market price of oil.

For example, every Monday the tax per gallon for the three main gasoline grades and diesel could be announced for the next seven days based on the four-week moving average price of light sweet crude. The amount would be the same for everyone who could then compete locally however they saw fit.