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Time For A Gas Tax
As Washington bickers about whether to save Detroit, the WSJ and Clusterstock's Joe Weisenthal astutely observe that it is also planning to drive the car-makers right out of business -- by forcing them to build fuel-efficient cars that no one wants now that gas is back to $1.70 a gallon.
No one will pay a premium for these cars now that gas is again cheap, which means Detroit will be asking strapped consumers to pony up out of the goodness of their hearts. Consumers won't do this -- not because we're bad people, because our national gas policy is absurd -- and Detroit will be forced to dump the cars at a loss. Which will soon send them groveling back to Washington again.
Thankfully, there's a simple answer: A gas tax.
Not a flat-rate gas tax, which would leave consumers and car makers exposed to the same sort of price spikes that killed them this time around. A gas tax that adjusts depending on the price of oil.
Specifically, a gas tax that fixes the price of a gallon of gas at $4 a gallon nationwide, with the tax being the difference between the market price and $4. The tax will thus adjust with the market price of oil -- less tax when oil is expensive, more when it's cheap. And the price of gas will stay fixed at $4 unless oil prices really soar, at which point it will disappear (and gas prices will float to wherever the prevailing market price is).
To avoid sandbagging Detroit and strapped consumers, Congress could announce now that it plans to implement this tax in 2011, thus giving everyone two years to prepare. The car companies could confidently retool their factories, instead of worrying that they will have to frantically retrofit them every year to make SUVs, then Priuses, then SUVs, etc. Consumers could retool their expectations, assured that they won't lock themselves into a tin can by buying this year while their neighbor gets to buy a Hummer by waiting until next year (and then goes broke when prices spike again). The government, meanwhile, could raise more of the screamingly-needed new funds necessary for all this infrastructure spending and bailout-out they're doing.
Will it happen? Of course not. Because the real First Amendment to the US constitution was apparently the right to drive land yachts in perpetuity. But it's nice to think so.
See Also:
Green Mandates: A Disaster For Automakers
Ghost of Christmas Parties Past: A Slideshow
Follow Henry Blodget on Twitter: www.twitter.com/hblodget
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A gas tax is really the only logical way to reduce fuel consumption. How does CAFE reduce fuel use? I reduces fuel used per mile, but that just means people can drive farther for the same price.
As for this tax hitting the poor harder, the tax could be to set it to begin at a known date in the future, so people can purchase their next car accordingly, and to have a refund for those with low incomes.
Even the Detroit companies favor a gas tax as a way to reduce fuel consumption:
http://www.autobloggreen.com/2007/08/09/alan-mullaly-favors-a-gas-tax-over-new-fuel-economy-regulations/
With "Will it happen? Of course not." Mr. Blodget concedes that his
plan is not viable. Much of the subsequent commentary illustrates the
resistance to gas taxes and taxes in general. A gas tax is applied to
the end consumer, is regressive. and does not discriminate the
origin of the petroleum.
A more viable approach would be a flexible tariff on imported crude
oil. The principle would be the similar: the tariff would kick in
when the oil price goes below a threshhold value, and would increase
as a percentage of the decrease in price. Countries in free trade
agreements would be exempt. Advantages:
o It encourages oil independence; there is broad support for this.
o It is viable: there are a limited number of entry points for
foreign oil; the supplier, the importer and the amount imported
are well-documented.
o Paid by the importer, tariffs are not the same as taxes.
Oil companies can buy domestic or free-trade zone oil.
The end consumer would see a net drop in price, albeit
less dramatic.
o It would encourage investment in alternative energy, as well
as technologies improving yields of existing fields.
A flexible tariff could reduce the current volatility in the petroleum
market, which is the real problem. With production quotas, OPEC and
other countries (e.g. Russia) have a 'lever' to increase the oil price.
It seems strange that the U.S., subject to the whims of the exporters,
does not have a reciprocal lever.
Yup.
Tax imported oil. Rais the tax so that the average price of gasoline is raised by 50 cents/gal per year until we get back to $4/gal.
Okay, let's hear from the poor: Me!
I fall into the income category of "working poor" -- very disappointing, since I am a college graduate and have been busting butt for 26 years in the same field.
I live within my means with a well kept and reliable 15-year-old Subaru. I live close to my day job and do freelance at home. When oil prices spiked, I used public transportation whenever possible, and the systems really stepped up to the task.
Recently NPR reported that when gas goes up $1, Americans drive several billions of miles LESS. I drove less. My friends understood that I couldn't burn up my fuel budget indiscriminately. I was heartened to see lots full of SUVs that nobody was buying, and more small cars on the road. Now I hear the short-sighted are buying gas guzzlers again.
I'm of the group who believe that money talks. I've long supported a gas tax so oil companies won't reap all the profits.
Also, let's tax vehicles based on average weight and mileage ratings. Finally, can we have bumper and headlight height restrictions on passenger vehicles, so SUV bumpers won't be the same height as my shoulder and the headlights won't be the same height as my sightline? If oversized passenger vehicles become ugly by law, nobody will buy them.
Use the revenue from the imported oil tax to pay for a decent mass transit system.
Why should Americans have to go into debt to buy a car just to get around? Is there anything less efficient than lugging 2000 lbs of steel around to get a carton of milk?
As it is, American automobile countries are going bankrupt and Detroit is the poorest big city in the US. The automobile as an American transportation paradigm is not working for Americans who build the cars and it is not working for Americans who must buy them.
Time to change.
Energy Bonds could be used to quickly raise $300 billion within 5 years for alternative energy investment. Instead of it being a tax at the pump, the consummer receives dollar for dollar energy bonds and becomes a stakeholder in getting off foreign oil.
In a Nutshell
Energy Bond contributions would come from raising the price of gasoline to provide a “floor’ gasoline price with offsets for consumers and commercial operators. The difference between the market price and the “floor” price goes to the Energy Bond Fund which is owned by the consummer based on their gas purchases
The Energy Bond Fund is used to immediately provide investment capital in alternative (to oil) infrastructure that directly or indirectly reduces the consumption of foreign oil.
For each dollar in Energy Bonds “purchased’ at the pump the consumer receives Energy Bond dollars through their (modified) oil company’s reward card program. The oil companies are required to track “Energy Dollars” purchased at the pump as part of their existing rewards program infrastructure. The consumer redeems reward card Energy Dollars for Energy Bonds (in dollars) via the internet.
At this point, the consumer directly owns Energy Bonds in the portfolio of companies that received Energy Bond capital investment from the Energy Fund.
Diesel fuel is exempt from the Energy Bond program. This keeps the cost for all commercial truck and public transit fleet fuel costs down to market pricing.
A gas tax such a this would unfairly and disproportionally punish the poor and the working poor. Or perhaps that's the intention? The more affluent would simply not care as they can afford to pay the tax without affecting their lives.
If you want to apply a tax for the purpose of social engineering, then apply it to the vehicle price based upon it's epa mileage ratings. The taxes will still be collected, however, it will not unduly punish those who can least afford it.
If they do this then government officials should start having to pay for their own gas instead of us taxpayers.
This is typical of the soak-the-poor mentality. As another stated, consumption taxes are regressive in nature. We already know the rich can afford $4/gallon. But it put a huge hurt on the poor and middle-class commuters.
At this point I'd think that few Americans could afford a new "green" car anyway. My 401K is down like 40%, as is my daughter's college fund. Unless there is a record rally she won't make up the loss before starting in the fall of '09.
Finally, what makes you think that setting a $4/gallon "ceiling" will keep foreign oil prices down. Couldn't OPEC strangle us by raising the per barrel prices back up to $150? This would hurt the US Treasury since gas tax revenues would plummet to zero!
If anything we need to lower taxes - period. JFK, Reagan, and W all had the same results from enacting tax cuts - an increase in government revenues. Combine this with finally making the hard, unpopular choice of eliminating programs to cut govt spending and we end up reduce debt. Which I thought was what we all desire.
Nonsense! You're assuming that economic growth under these presidents was a result of tax cuts, when it would have happened anyway, and revenues would have increased even more.
Obama promised not to raise taxes (in fact lower them) for 95% of Americans. Raising gas taxes would kill his presidency.
No to the gas tax! At least until 2010.
We are still reeling from paying near $5./bal at the pump.
A gas tax is the way to go! Quite frankly, the consumption of gasoline degrades the environment (in more ways than one), and people should pay for the privilege to ruin the Earth.
The U.S. should impose an "energy price tax" on each barrel of oil consumed in the U.S., and apply it to support new "green" technologies.
According to the International Energy Agency, we consume 7.7 billion barrels of oil annually. An energy price tax of $50.00 per barrel could generate $385 billion of revenue annually to revolutionize America’s energy base and create millions of new jobs – with no new deficits.
The tax would help create a “floor” price for oil and halt the cycle of price swings that incent and then discourage investment in alternative energy. The tax would also move oil closer to its “life-cycle” cost --reflecting its “external” impacts on the environment, public health and national security, and the fact that excessive consumption by the current generation imposes higher costs for future generations.
The tax would likely skirt negative impacts on consumers since its application to the current price would still mean sub-$100.00 per-barrel oil. Even if oil settles at $80.00 as predicted, the tax would still produce price below the peak of $145.00 per barrel set in July.
Evidence from the 2008 run-up in oil demonstrates that demand decreases only slightly in response to higher prices, because consumers lack reasonably available alternatives. An energy price tax would yield more efficient and equitable pricing, speed up diffusion of new technologies, and deliver real benefits to the people for a change.
Waikapu, Maui, Hawaii
Yes, absolutely, do it now. Simply double the existing federal gas tax, from 18.4 cents to 38 cents per gallon, will generate $38 billion per year to fund Green Energy. Heck, you can even buy GM, Ford, and Chrysler with the money.
http://www.iplanretirement.com/retirementblog/raise-gas-tax-fund-green/
Now is the time to do it, gas prices have fallen dramatically, and very few will feel the impact of an extra 18.4 cents at the pump.
Can I be the first person to nominate Al Gore for Car Czar?
The only tax we should have is a progressive one based on income. A person who does not earn enough to live should not pay income taxes or taxes on consumption. Taxes on consumption are regressive -- they harm poor people and are inherently unfair. The person earning $20,000/year who drives to work will pay the same gas tax as the person who earns $250,000/year, if they travel the same roundtrip miles. And maybe more because the poor person's car is likely to be older and less fuel efficient.
Let's say both poor man and rich man have the same commute and same car, same mileage. The tax would be the same dollar amount, but as a percentage of gross income, would be a much bigger percentage for the poor than the rich. By adding sales taxes, TV, gas, other taxes, the effect is to transfer even a larger tax burden onto the poorest people in the country. Any tax based on consumption is grossly unfair to the poor and to the working class, and favors the wealthy.
As a raging liberal, I'd like to punch anyone who suggests a gas tax squarely in the nose repeatedly.
As a raging progressive, I'd like to punch any liberal who opposes a gas tax squarely in the nose repeatedly.
As a raging alcoholic, I'd like to punch anyone who opposes getting me another drink in the nose repeatedly :)
"...WSJ and Clusterstock's Joe Weisenthal astutely observe that it is also planning to drive the car-makers right out of business -- by forcing them to build fuel-efficient cars that no one wants now that gas is back to $1.70 a gallon."
I find this assertion to be patently absurd. I don't care how low the price of gas gets, I'm always keen to save on expenses with a more fuel-efficient vehicle, as is everyone I know. Plus - and here's the rub - gas is not going to stay this low. The prices we are seeing now are a quirk of the current unstable market. Once things start evening out, we're going to see the price of gas level off at somewhere around $2.00 - $2.50 / gal. and it can only go up from there as the petrol reserves continue to deplete.
Mr. Blodget goes on to add "No one will pay a premium for these cars now that gas is again cheap,..." which perhaps has a grain of truth to it, unfortunately. The answer here as I see it is not to punish the consumer with an additional tax on gasoline, but rather to regulate the auto industry into producing these cars at an affordable price. They already have the technology and have had it for years. People will buy the cars if they are priced right. Everybody wins.
If we had a gas tax in the 70s a lot of our problems would have been mitigated/resolved. It may not be popular but it is simple and the closest thing to a market-based solution. Getting out from under foreign oil is more important than cheap driving miles. We can't continue to transfer wealth.
Boone Pickens, hardly a left-winger, has suggested a tax such as you propose. (Of course, he does own natural gas but is is AMERICAN).
A few suggestions. The tax shouldn't be capped at $4.00. It has to eliminate dependence on foreign oil. Europe and Japan have had prices higher than $4 for a long time and are in better competitive position than the U.S. because they have adapted already. Second, the tax should be phased in at the rate of 5 or 10 cents per month with a balloon two years out. It has to FEEL real.
It is often said that U.S. consumers have short memories and buy more gas when prices are down. It is not the place of a consumer to think of national security and the trade deficit. Not to mention that the media doesn't give good prominent info. This is a question of leadership.
It would be useful if there were monthly stories about the trade deficit (oil and goods) giving the level, change, reasons, implications, and challenging people to do things to cut miles driven, etc. Informed people make better decisions.
Well send me a monthly check so I can make it work.
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