Gas Tax Debate
The best plan I’ve seen for doing the politically impossible comes from an energy economist named Philip Verleger.
…Verleger favors what he calls a “prospective gasoline tax,” which would allow the country four years to get ready to do the right thing. Congress would enact a stiff tax of $2 per gallon, to take effect in January 2009, with further increases of another dollar in each of the following three years. To cushion the blow, the Treasury would borrow against the expected tax revenue to buy back the public’s gas guzzlers (defined as vehicles getting fewer than 25 miles a gallon) at their 2004 value.
The idea that a higher gasoline tax will help our energy situation is ludicrous. All European countries have far higher gasoline taxes and they are just as vulnerable to increases in the price of oil as we are.
I think that Bartlett is right to think in terms of a world oil market. In that context, if we raise our gas tax, then our consumers will pay a higher price for gas, our demand will fall, and the world price of oil will decline a bit. But the goal of “insulating” the U.S. from the world oil market is a chimera.
I also think that Verleger is wrong to suggest that the only side-effect of a rise in the gas tax would be lower values for low-mileage cars. Assumptions about the price of gasoline have affected the way that companies have set up logistics operations, the way that individuals have made location choices, and so forth.
Verlerger’s ultimate goal of a $5 hike in gasoline taxes may be excessive. At that point, the economy’s overall choice between gasoline and other fuels becomes really distorted. For example, people will choose to fly more (consuming more jet fuel) for short trips.
However, I do think that if politically the choice comes down to either a higher gas tax or new comman-and-control style regulations, such as CAFE standards for fuel economy, then a higher gas tax is less distortionary. It also reduces adjustment costs to have the increase take effect on a deferred, gradual basis.
For Discussion. Which occupations would be particularly affected by a high gasoline tax?