Raise the Gasoline Tax?

Daniel Gross writes about suddenly-ungagged Republican economists and the gasoline tax:

Raise the Gasoline Tax? Funny, It Doesn't Sound Republican - New York Times: FOR nearly two decades, Alan Greenspan owned the biggest megaphone... dispensed advice on matters economic -- interest rates, budget and tax policies, entitlements, the stock market, the best kind of mortgage -- people listened. As a rule, Mr. Greenspan... adhered closely to Republican orthodoxy on taxes: the lower the better. Mr. Greenspan was hardly a proponent of raising taxes on energy to encourage conservation, a policy prescription generally associated with the politicians and economists of the left.

Until now. In late September... a question was posed as to whether he'D like to see an increase in the federal gasoline tax, which has stood at 18.4 cents a gallon since 1993. "Yes, I would," Mr. Greenspan responded.... "That's the way to get consumption down. It's a national security issue."

Mr. Greenspan isn't the only Republican-aligned economist to have discovered, or rediscovered, a fondness for higher energy taxes since leaving government service. N. Gregory Mankiw... favored a higher gas tax before going to Washington, and has been banging the drum loudly for it since he left. On his blog, Mr. Mankiw has formed the Pigou Club, named for Arthur C. Pigou, the British economist.... The roster of what Mr. Mankiw calls "economists and pundits with the good sense to have publicly advocated higher Pigovian taxes, such as gasoline taxes or carbon taxes," includes... Paul Krugman... Al Gore... Gary S. Becker....

Andrew A. Samwick, [former] chief economist on the Council of Economic Advisers... is a member in good standing. So is Martin S. Feldstein.... The government, Mr. Feldstein said, should essentially ration gas by distributing tradable gas rights that entitle people to use gasoline....

What gives? Clearly, consensus among economists... that the nation would be better off, geopolitically and economically, if Americans used less gasoline. "Given the role that imported oil plays today, you can't continue to be a responsible economist and not talk about ways to reduce that dependence," Mr. Samwick said. "If you are concerned about the external consequences of imported oil, then you should raise the cost of it."... [A] growing unity among economists across the political spectrum on the deleterious effects of global warming. "The U.S. has reasonable arguments for not signing the Kyoto treaty, but we need to propose some other measure that will help reduce emissions," said Kenneth Rogoff....

But as much as Republican-leaning economists like Messrs. Greenspan, Mankiw and Samwick may think that it's a good idea, the Republican politicians who control the levers of power in Washington think that it's an awfully bad one.... The last increase in the federal gas tax was enacted as part of the so-called deficit reduction act of 1993, a package of spending cuts and tax hikes that didn't receive a single Republican vote in Congress. And because President Bush and his top political advisers are known to be adamantly opposed to any increase in the gas tax, economic advisers haven't pushed it much. "We didn't have policy discussions about raising the gas tax," Mr. Samwick recalls of his time in the White House.

THIS highlights a professional hazard faced by academic economists who serve in presidential administrations. They must act as team players who value the overall success of the administration -- even if they don't agree with all of its policies. As a result, economists must often stow some of their policy ideas in an intellectual coat check at the White House gates, where they can be reclaimed upon return to private life...

Treasury Secretary Paul O'Neill and EPA head Christine Todd Whitman were for an increase in the gas tax back at the start of 2001, when they thought they were in charge of global warming policy. They could have used some backup then--and Bush could have used some reminding in 2002, 2003, 2004 and 2005 that O'Neill and Todd Whitman were right. And I have never understood why George W. Bush and his Texas, Oklahoma, and Louisiana friends aren't in favor of a tax on imported oil, which is a huge money maker for their interests.

Comments

[doug]

a tax on imported petroleum was tried in the 1970s (1980s?) but found GATT-illegal.

[Tom Marney]

The American people, by and large, are either too stupid to understand why too-cheap gasoline is a problem or too cynical to care, and most politicians are right with 'em because it'd be suicide not to be.

You already understand this, right?

And now is not the time for Democrats to start talking about a gas tax. That'd be a bigger hit to the Dems than Foleygate has been to the Republicans.

[ctm]

What if a gas tax, or some kind of carbon tax, could be packaged with corresponding income tax reductions? A revenue neutral thing.

Wouldn't conservatives be in favor of this? Don't they want to shift away from income and toward consumption taxes?

I think the Democrats could make this a winner if they sold it in this light. They could tout it's geopolitical, economic and environmental merits.

[RT]

I remember a tariff on imported oil being batted around back in the late 1970s or early 1980s. It was pretty obvious even then that taxing each barrel of imported oil by $1 would mean giving an extra dollar per barrel to every domestic oil producer, courtesy of the American consumer.

I don't remember which political shoals this proposal ran aground on, but it's hard to see who would have been *for* this idea, other than domestic oil producers, and the occasional muddle-headed columnists. And since a good deal of the WaPo's current stable of columnists was already in business back then, muddleheadedness was not in short supply in the commentariat.

[Tom Marney]

ctm,

As far as the revenue-neutral thing, I'm with you, and principled conservatives ought to be, too. But "principled conservatives" (and, on this issue, at least, "principled liberals") is largely a hypothetical construct. Like reform of congressional earmarks or how electoral districts are drawn, a sensible gas tax is something that should be done but won't be because the way our political system is set up makes it all but impossible.

Besides that, the problem with a revenue-neutral gas tax increase is what to do about people on fixed incomes. Income or payroll tax reductions will do little or nothing for them. Perhaps a Rube Goldberg-esque scheme to replace state and local sales taxes, plus an extra stipend for Social Security recipients. I'm for it for economic, environmental, and balance of trade reasons, but if I were king, I don't know how I'd actually implement it.

The better way to have done it would've been to start about fifty years ago as most of the rest of the world did. But it's too late for that now.

[anne]

So, the same folks who have been wishing to do away with any and every legacy of the New Deal, these nice conservatives as opposed to, well, you know, want to tax gasoline after all these years and just when simply buying it as is is enough for most people. Well, the not so nice conservatives are not going to play and Democrats should remember who was governor of California before the current governor when a rise in the vehicle registration fees was threatened. Remember?

There will be no increase in the gasoline tax, but there is lots that can be done to conserve energy use that involves no gasoline tax increase though nice conservatives are not ready to think of what might be realistic and workable.

[anne]

Though I have no idea I wonder what the price of gasoline might be had American vehicle makers been pushed enough on fuel efficiency to have "Prius" engines available through all product lines. Also, suppose we had not gone to war in Iraq or suppose we had even deposed the Iraqi government and withdrawn immediately 3 1/2 years ago. Suppose we were to leave Iraq now, instead of listening to old lunatics who wish us to stay forever or new lunatics who think we need to break up Iraq. What would gasoline prices be if we were to leave Iraq now; though we should leave immediately no matter the answer?

[david]

Has anybody done a carbon emissions estimate on the Iraq war? Serious question--the carbon numbers on the Army are through the roof. Might be easier to count than the Iraqi dead, which is a horrible idea to contemplate.

[sd]

A relatively high gas tax is exactly the right public policy. However, it needs to be phased in, over a period of time at least as long as the typical replacement cycle for vehicles, and possibly as long as that plus the typical development cycle for vehicles, to avoid massive unintended consequences.

Telling people that gas will be $5.00 a gallon in 2012 will encourage massive R&D around fuel efficiency and the purchase of fuel efficient cars over the next several years. Making gas $5.00 a gallon now will simply spank the industrial base of the interior states and the houshold budgets of suburbanites, with comparatively minor impact on the industrial base of the coastal states and the household budgets of urbanites.

[Jimmy Carter, July 15 1979, Tanned Rested, and Ready.]

http://www.pbs.org/wgbh/amex/carter/filmmore/ps_crisis.html

"In little more than two decades we've gone from a position of energy independence to one in which almost half the oil we use comes from foreign countries, at prices that are going through the roof. Our excessive dependence on OPEC has already taken a tremendous toll on our economy and our people. This is the direct cause of the long lines which have made millions of you spend aggravating hours waiting for gasoline. It's a cause of the increased inflation and unemployment that we now face. This intolerable dependence on foreign oil threatens our economic independence and the very security of our nation. The energy crisis is real. It is worldwide. It is a clear and present danger to our nation. These are facts and we simply must face them.

What I have to say to you now about energy is simple and vitally important.

Point one: I am tonight setting a clear goal for the energy policy of the United States. Beginning this moment, this nation will never use more foreign oil than we did in 1977 -- never. From now on, every new addition to our demand for energy will be met from our own production and our own conservation. The generation-long growth in our dependence on foreign oil will be stopped dead in its tracks right now and then reversed as we move through the 1980s, for I am tonight setting the further goal of cutting our dependence on foreign oil by one-half by the end of the next decade -- a saving of over 4-1/2 million barrels of imported oil per day.

Point two: To ensure that we meet these targets, I will use my presidential authority to set import quotas. I'm announcing tonight that for 1979 and 1980, I will forbid the entry into this country of one drop of foreign oil more than these goals allow. These quotas will ensure a reduction in imports even below the ambitious levels we set at the recent Tokyo summit.

Point three: To give us energy security, I am asking for the most massive peacetime commitment of funds and resources in our nation's history to develop America's own alternative sources of fuel -- from coal, from oil shale, from plant products for gasohol, from unconventional gas, from the sun.

I propose the creation of an energy security corporation to lead this effort to replace 2-1/2 million barrels of imported oil per day by 1990. The corporation I will issue up to $5 billion in energy bonds, and I especially want them to be in small denominations so that average Americans can invest directly in America's energy security.

Just as a similar synthetic rubber corporation helped us win World War II, so will we mobilize American determination and ability to win the energy war. Moreover, I will soon submit legislation to Congress calling for the creation of this nation's first solar bank, which will help us achieve the crucial goal of 20 percent of our energy coming from solar power by the year 2000.

These efforts will cost money, a lot of money, and that is why Congress must enact the windfall profits tax without delay. It will be money well spent. Unlike the billions of dollars that we ship to foreign countries to pay for foreign oil, these funds will be paid by Americans to Americans. These funds will go to fight, not to increase, inflation and unemployment.

Point four: I'm asking Congress to mandate, to require as a matter of law, that our nation's utility companies cut their massive use of oil by 50 percent within the next decade and switch to other fuels, especially coal, our most abundant energy source.

Point five: To make absolutely certain that nothing stands in the way of achieving these goals, I will urge Congress to create an energy mobilization board which, like the War Production Board in World War II, will have the responsibility and authority to cut through the red tape, the delays, and the endless roadblocks to completing key energy projects.

We will protect our environment. But when this nation critically needs a refinery or a pipeline, we will build it.

Point six: I'm proposing a bold conservation program to involve every state, county, and city and every average American in our energy battle. This effort will permit you to build conservation into your homes and your lives at a cost you can afford.

I ask Congress to give me authority for mandatory conservation and for standby gasoline rationing. To further conserve energy, I'm proposing tonight an extra $10 billion over the next decade to strengthen our public transportation systems. And I'm asking you for your good and for your nation's security to take no unnecessary trips, to use carpools or public transportation whenever you can, to park your car one extra day per week, to obey the speed limit, and to set your thermostats to save fuel. Every act of energy conservation like this is more than just common sense -- I tell you it is an act of patriotism.

Our nation must be fair to the poorest among us, so we will increase aid to needy Americans to cope with rising energy prices. We often think of conservation only in terms of sacrifice. In fact, it is the most painless and immediate way of rebuilding our nation's strength. Every gallon of oil each one of us saves is a new form of production. It gives us more freedom, more confidence, that much more control over our own lives.

So, the solution of our energy crisis can also help us to conquer the crisis of the spirit in our country. It can rekindle our sense of unity, our confidence in the future, and give our nation and all of us individually a new sense of purpose.

You know we can do it. We have the natural resources. We have more oil in our shale alone than several Saudi Arabias. We have more coal than any nation on Earth. We have the world's highest level of technology. We have the most skilled work force, with innovative genius, and I firmly believe that we have the national will to win this war.

I do not promise you that this struggle for freedom will be easy. I do not promise a quick way out of our nation's problems, when the truth is that the only way out is an all-out effort. What I do promise you is that I will lead our fight, and I will enforce fairness in our struggle, and I will ensure honesty. And above all, I will act. We can manage the short-term shortages more effectively and we will, but there are no short-term solutions to our long-range problems. There is simply no way to avoid sacrifice."

[bigTom]

Its so depressing, that this obvious policy change is just so politically impossible. I'll try to give you one more bullet for the battle. A gas (or oil) tax would be an efficient tax in the following way: for every $1 raised by the government the domestic economy will pay less than $1. The remainder will be "subsidized" by oil exporting nations by means of a (slightly) lower world price of oil. Framed in this manner (and coupled with some sort of revenue neutral tax offset), its just concievable (but in my opinion still extremly unlikely) that it could be sold to the NASCAR dads.

[John Emerson]

I'm pretty sure that most American oilmen have diversified and make most of their money on foreign oil. The US is a major oil producer but uses all of it domestically and imports a lot.

[knzn]

I was going to ask, “Would an oil tariff be allowed under our current trade agreements?” but I think doug has pretty much answered that question….

[DEEPGHETTO]

This is a cart before the horse argument.Before or simultaneous with any rise in the fed gasoline tax you have to inspect and revise our land use policies especially in the vast midland.Until that is addressed any excercise in raising the gas tax in just BS.

[Ian Whitchurch]

John,

If you do it by bodycount, no.

Make $10m in the oil game in Australia and people want to know when you're going to start exploring in Africa.

Make $10m in the oil game in the US and you start thinking of expanding to the next county.

Ian Whitchurch
Northern Territory Oil

[Bruce Webb]

"What if a gas tax, or some kind of carbon tax, could be packaged with corresponding income tax reductions? A revenue neutral thing."

Anne touched on this. Poor people are heavily taxed. Poor people don't pay income tax. A contradiction in terms? No a commentary on how taxes are structured in America. If you are poor and employed and have kids Uncle Sam sends you an EITC check. Does that mean that you are going untaxed? Hell no. Does that mean offsetting a gas tax with income tax reductions is economic nonsense? Well yes it does.

In Finland they scale fines for speeding by income. If you want to suggest gas taxes based on blue book value I am perfectly willing to listen, but suggestions that we solve global warming by charging people extra because they can't afford a Prius is just cruel.

[RT]

Thanks, whoever posted Jimmy Carter's speech. He was being incredibly optimistic, and of course few back then could see the right-wing tide coming, that would keep future Presidents and Congresses from following up on what he did. But it wasn't until about 1993 that we were consuming more petroleum than we did in 1979, which is still a pretty impressive track record.

[anne]

Thank you for the speech by Jimmy Carter.

Ian Whitchurch has several times correctly noted the relative lack of international investment in exploration and development by American energy companies. I continue to be puzzled by this, since in forming energy legislation there was no significant attention to stimulating international investment.

[bakho]

The problem with oil taxes is the same problem with tariffs. Anything that makes oil more expensive for Americans than other countries puts America at a competititive disadvantage.

Carter proved that increases in energy efficiency standards could drastically reduce oil consumption. This is so duh. No one talks about massive subsidies for busses and other mass transit. If busses and other transit was cheap, ridership would be high and running more busses on more routes would improve service. Some universities collect student fees to increase campus bus routes. This eliminates the need for more parking garages. All students can ride the bus free, not only on campus, but anywhere it the city. Even people who drive cars will make short trips on the bus so as not to lose their parking place or because it is faster to take a bus than to walk to a car, drive, then search for another parking space.

Many of the alternative energy devices, solar, wind or hydro-electric have high initial investment costs. However, once the initial investment is made, they can produce cheaper energy than other sources even with maintenance costs.

The US provides massive subsidies to cars and trucks in the form of road construction and maintenance. If more subsidies went to more efficient transportation network, cars and gas prices would be less of an issue.

[jerry]

Bakho, I think your first paragraph is the common wisdom, and refuted nicely by your next three paragraphs.

Taxes and tarriffs are in general not the same, but could be in specific ways -- it depends on how you measure, how the money is used and it depends on the market and technological alternatives.

[spencer]

Oil is also a high fised cost, low variable cost industry not much different from the
other alternatives Bakho brought up.

Are you sure an import tax on oil would be illegal? I do not remember the US imposing an import tax on oil in the 1970s.

[JonF]

Instead of further burdening down the poor and working class withg more regressive taxes, how about a gas guzzler tax instead? Set a target (a modestly ambitious one) for miles/gallon rate and impose a steeply rising tax on new vehicles that fail to meet it (and no exemptions for SUVs and pickups) while subsidizing (also at a steeply rising rate) new vehicles that exceed the target. That would motivate people to buy fuel efficient vehicles without penalizing the poor.

[ctm]

- Subsidies are nice, and need to be a part of the plan due to the usual externalities associated with technological research. But you have to have a tax on gasoline, or carbon more generally. The tax is the hammer, without which no serious movement will be made toward conservation or newer technologies.

- This tax will fall more heavily on the poor. That is why the package would be put forward with a heightened EITC for lower income groups, or some other assistance.

- I think this will be less politically arduous than many here are making it out to be. Neocons, for whatever their faults, recognize the importance of weaning ourselves off oil. Hunters are becoming more concerned about global warming. Guzzling gas is becoming harder and harder to justify. If you can package a gasoline tax with offsetting income tax reductions, I really don't see how this is going to be a debacle. And if we could somehow work a tariff into the mix, we might even be able to get Exxon on board (they'd lose on their imported oil, but gain a lot on domestic production.)

- The tax would of course have to be phased in over a period of several years. This would give people time to adjust.

- Someone above mentioned land use policies. No way do we want the government getting involved in that. Then the democrats really will be framed as looney social engineering types. A phased in gasoline tax will give people time to adjust their lifestyles, maybe in some cases with a lot of grumbling, but it will certainly check or even reverse sprawl.

Seems like a no-brainer to me.

[Sonia]

Over the long run, low income families have the least ability to adjust to global warming and to spikes in energy prices. Also over the long run higher gasoline prices would foster less energy intensive residential patterns. Using the proceeds of a gas or carbon tax to increase the EITC would leave some folks better off and others less well off. Families in rural areas who drive long distances to work would be less than fully compensated but these folks generally have an otherwise lower cost of living than those living in dense cities.

Another option for low income folks would be tradeable "gas stamps".

If an increase in the gas tax is impossible then raising the fuel efficiency standards and expanding the gas guzzler tax are second best options.

[andres]

ctm: An increased EITC is a nice idea that would eliminate the cost of gas taxes on poor families, but unfortunately it doesn't do anything for middle-class families who don't qualify.

In line with the concerns that anne and Bruce Webb have posted in previous threads, we do not need an increased gasoline _tax_, which is highly regressive. In fact, I think we shouldn't have a gasoline tax at all.

A better idea, which I've mentioned in previous threads on this subject, is a non-tax gasoline _redistribution_, ie where everyone pays a fee per gallon used and then the revenue does not go to the government but is redistributed to the entire population on either a per capita basis or on a per driving age per capita basis. Thy Sky Trust (http://www.usskytrust.org/) is one such initiative.

Such an initiative by itself would not make a huge dent in gasoline consumption, so what really needs to be put in place is a tax on larger gas guzzler cars that poor families and lower middle-income families wouldn't buy anyway. And subsidies for public transportation and bycicling. And so on.

Come to think of it, we could always reelect Jimmy Carter, who only served one term after all...

[a different chris]

>As a result, economists must often stow some of their policy ideas in an intellectual coat check at the White House gates,

Huh? That sounds pretty dysfunctional, and although it is true - and one of the huge problems - with The Dauphin's Court, it seems an anomaly.

We have a live witness here (Prof DeLong) that it wasn't that way with Clinton - and much evidence exists that most of our presidents (including Nixon) understood the importance of hearing what they rather wouldn't given their druthers.

Now I'm all for not undermining "the team" in public, as any given specialist by definition doesn't see the whole picture. With the caveat that you don't try to do a Rovian stretch of "the team" definition to include Congress, the media and the courts.

So I would be happy if the writer meant to say was just the opposite: The "coat" conceals your opinions when you are outside the White House, when you check your coat and enter the inner sanctum that is when you reveal your opinions in an attempt to give people who need your expertise the most, as Cheney would put it, "unvarnished" advice.

Can we get back to that kind of White House soon, please?

[JonF]

Re: But you have to have a tax on gasoline, or carbon more generally. The tax is the hammer, without which no serious movement will be made toward conservation or newer technologies.

If you tell people "A Hummer will cost you $5000 more while if you buy a Prius it will cost $5000 less", do you really think that would not motivate people to buy the Prius and skip the Hummer? Sure some rich folks would go ahead and buy the Hummer anyway, but they'd do the same with your tax scheme, because they can afford to. At least my idea gives people a choice and avoids even a hint of regressivity. In fact my idea is progressive and redistributive: the rich guy with the Hummer helps pay for the working guy's Prius, and that's something we sorely need more of. (FYI: I regard our growing inequality problem in this country as far more serious than anything involving gasoline). And as a plus I think my idea is politically viable whereas yours has snowball's chance in a blast furnance.

[Ian Whitchurch]

To toss some number into this, a tax on imported oil will deliver reasonably big windfall profits to US domestic producers.

Your rule of thumb for the in-ground value of stripper oil in the US is 36 months current production.

Assume the US is producing 9 million barrels a day. Thus, if the imported oil it competes against goes up by $10 a barrel, thats $90m a day extra, or about $3bn a month.

Multiply this by 36 and we get about a hundred billion dollars in windfall profits for people who own producing oil in the US.

As a $10/barrel rise translates into about a 10% increase in the price of fuel, I think you'd need higher levels than 10% to induce behaviour change.

In my opinion, you are much better off encouraging fuel efficiency by taxing the least efficient vehicle in each class, and providing bounties for the most efficient (effectively capitalising the fuel efficiency dividend or cost). Yes, even for pickup trucks.

Sure, I think that just taxing low-efficiency vehicles would be a better solution - but I dont think a policy that adds several grand to the cost of every pickup truck is going to fly. On the other hand, if you can say 'Under my policy, a fuel efficient pickup will cost 2 grand less', then it's a lot harder to attack.

Ian Whitchurch