April 29th, 2008
The recent announcements by McCain and Clinton of their support for a temporary repeal of the Federal gas tax make me sick. More on why later, but first, I want to put forth my idea. I think both Republicans and Democrats would like it — as it’s based on market principles and achieves a reduction in costs to the average household, while simultaneously helping the environment and reducing our dependency on foreign oil. But of course, it’s courageous, and we don’t have many politicians of that type anymore.
What we need is a large, revenue-neutral, gas tax increase. Now, before people go nuts, let’s explore what this means.
Revenue-neutral means that it doesn’t result in a net increase of monies going to the government. The increase in the gas tax rate is offset by a decrease in the income tax, tied to the cost of direct and indirect taxable gasoline each family or business consumes. So on day 1, if you cost of filling up at the tank goes up by $10 in a week, if you are an average family, your total paychecks also go up by $10. Your cost for receiving a package might go up by $1, and your paycheck goes up by the same amount. So you’re no worse off than before — if you’re average.
Let’s look at the pros and cons of this sort of plan:
- The economic incentive to be efficient consumers of gas is magnified. This will eventually lead to Americans having more money in their pockets, increasing market incentives for fuel efficiency, and a decreasing (or increasing slower) price of oil as demand slows.
- Economic incentives to use mass transit, live close to urban centers, or drive fuel-efficient vehicles are magnified. Likewise, the economic incentives to invest in mass transit and efficient automobiles are also magnified.
- As more efficient technologies come on the market, and Americans decide that they’d like to pad their bank accounts by hundreds or thousands of dollars a year, more sustainable and environmentally-friendly development patterns will emerge. Also, the price of oil will be kept low. Of course, people that choose not to change will, on average, be no worse off than before.
- Alternative choices to the automobile will have a greater incentive to develop. Think the return of a fast, speedy national passenger and freight network, greater mass transit options, etc.
- The marketplace will drive Detroit to love making fuel-efficient vehicles, because they will be the new profit centers.
- This sort of thing is known to work well in other countries around the world.
If we think more long-term, we see even more positive effects:
- The return to local agriculture and manufacturing. Due to lower transportation costs, local farmers and manufacturers will be able to undercut Walmart’s prices due to the larger relative costs of Walmart’s much-vaunted national distribution network. Unless, that is, Walmart starts buying local — which is a good thing too. This is a good thing for American jobs.
- Keeping all that oil money in the domestic economy is a good thing for American jobs, too.
- Our businesses will have a jump start on being competitive in the increasingly carbon-regulated global marketplace.
As for the cons:
- Eventually this will lead to a net reduction in Federal revenues as efficiencies develop in the marketplace and people save money on gas. Corresponding budget cuts will be required. (A good thing, I figure)
- Implementing this all at once would be a shock to some people living inefficiently now — those that are far above average. It would have to be implemented gradually to avoid being a shock to the economy.
Now, for the McCain/Clinton plan: it’s a farce. Reducing the gas taxes means more efficient gas, which means more consumption of gas, which in turn leads to — yes — higher gas prices. Its real effect will be minimal, and is a terrible long-term policy. It charges tens of billions of dollars to the national credit card (which we, and our children, will have to repay) while achieving almost no benefit now. It’s a gimmick through and through, and something that says loud and clear that neither candidate is on track for the “Straight Talk Express”.
Update 4/29/2008: One potential solution for the problem of declining revenues over time is to periodically re-index the averages to mirror current usage. Assuming this does really lead to the expected drop in consumption, there is no sense in 2020 of paying people for how much gas they would have used in 2008.