The income effect can be offset by lump sum payments. However, this scheme only works if the consumers fail to act as a group. Otherwise the assumptions that model the consumer’s allocation decision become unsound (as he assumes a fixed income). But probably we can model that using a bit of game theory. A few million people prisoners dilemma anyone? :)

Here in the UK, we have similar problems of being “hooked” on cheap energy – a junkie society. And similar arguments, about fixing it being unfair on rural folks, etc. Speaking from one of the most rural parts of England[1], nothing would please me more than the kind of change you ask for.

The biggest beneficiaries would be the rural poor: those who are heavily disadvantaged and marginalised by living in a society that *assumes* you have a car.

My suggestion: Target a specific *reduction* in both personal and corporate taxes that’ll benefit everyone. Then make it clear that “green” taxes are being used to replace that revenue.
http://bahumbug.wordpress.com/2006/10/30/green-taxes/

[1] Officially the second most rural constituency in the country, out of about 500.

As for mass transit — I know perfectly well that some cities have great mass transit systems and some cities don’t. This would be a great shot in the arm for the cities without good mass transit to build it. There is no reason that you should have to spend significantly more time in your commute with mass transit than without it. Plus, imagine riding on a train with AC outlets at every seat. Not everybody uses laptops for their job, but those that do could be productive while in transit even.

There are many places that have an incredibly nicely integrated transit system. Portland, OR and Chicago, IL are two that I’ve personally visited. Both cities integrate automobile, light rail, long-distance rail, plane, and bus service. Rail serves major arteries, and parking lots and connecting buses serve the “last mile” of getting people to the rail system. I enjoy visiting those cities because I never have to rent a car. It’s easier to get around, and cheaper and faster, too.

This point is driven home particularly well in Chicago, where some rail services run right down the middle of the freeways. You can watch the congested and stalled traffic on the freeways sit there while you whiz by on the train.

Outside of the densely-populated northeast corridor (NEC), where long-distance train service is common and frequent, California and Illinois are two states that are a great model of what can be done with rail, even in rural areas.

So to summarize, I think that a policy like this would provide a much-needed kickstart to spur local governments to invest in mass transit good enough that people like you would choose it.

If you look back to the 1920s or before, mass transit was sustainable all across the country, in rural and urban areas. The economic crash and rising popularity of automobiles had a negative effect in many areas, but with a much larger population in this country now, it could certainly be sustainable again.

Just look at some of the unlikely places it’s popping up: Dallas, Ft. Worth, Atlanta, etc.

Lets say you live in San Francisco. Given the density of the city, mass transit is easy.

I live in Phoenix, mass transit means turning a 20 minute commute into a 90 minute commute. Talk about a drop off in productivity.

Tinkering with the economy and adding false incentives is bad, and will generally end badly.

You are looking at the problem wrong. The problem isn’t with gasoline, its with energy. Its time to expand our energy base. Build more nuke plants, build more oil refineries, expand coal resources, drill more oil and natural gas. The international demand for oil will not change by actions undertaken here.

But I think your point is flawed. People adjust their habits based on gas prices. Already we are hearing of people selling homes in suburbs 2 hours out from the city and moving downtown because it’s cheaper to live close to work now. We have movements to add and improve mass transit nationwide, in both “red” and “blue” states — even here in Kansas, and most notably in Atlanta. The higher prices are already having an effect.

I did point out that a decrease in gas consumption would need to be met with offsetting decreases in the federal budget (or other sources of revenue, of course). I think that can be accomplished.

To the anonymous poster, yes I agree that it may be tricky to get the averages right, especially for businesses. But just because it’s tricky doesn’t mean it can’t be done. Remember, we are in charge of the government, and if we care enough to make sure it gets done right, it will.

I take great issue with one point in your last paragraph, however: “It charges tens of billions of dollars to the national credit card”. Reducing taxes does not spend money, or cost the government money. Reducing taxes *gives the government less money*. Government spending charges tens of billions of dollars to the national credit card. To phrase it the way you did implies that the government had the right to the money in the first place, and graciously let us keep some of it.

We the people have the right to our own money, and we let an irresponsible government continue to take it from us, because we apparently lack the ability or the gumption to change that.