1.30.2009

How to Implement a Gas Tax Increase

One of the fun things about being a blogger is you can propose solutions and not have to worry about thinking through how to actually implement them. Well, if you're a regular visitor to this space, you know I'm often found banging on the issue of hiking the federal gas tax. How to actually do this, though, particularly in such a dreary economic period?

First of all, let's reiterate why this is a good idea in the first place. Gas prices are artificially low, because they don't have baked into them all sorts of what economists call "negative externalities." That's just a fancy phrase for "costs that aren't borne by the user." When we fill up at the pump, we're not paying our fair share of gas' contribution to a warming planet, a scary level of dependence on shaky countries, and the incremental increase our driving adds to congestion and highway deaths. Heck, we're not even paying our fair share of gas' contribution to the maintenance of our roads: the fact that the 18.4 cent per gallon federal tax hasn't been raised in something like 18 years, combined with greater fuel efficiency in our cars during that time, means we're falling way behind in stocking our highway trust fund.

Combine that with 50 years of subsidized interstate highway construction and unfair formulas in terms of allocation of federal funds for highways versus transit, and you have an economic system that is completely unsustainable, in terms of land use patterns and fossil fuel consumption. The "inconvenient truth" of minding our environmental responsibilities is that we're going to have to drastically wean ourselves from behaviors that are deeply embedded in our American way of life. And, with apologies to appealing to our consciences and enacting complicated cap-and-trade mechanisms as noble attempts at getting us closer to a more sustainable way forward, properly pricing gas through a federal tax is the cleanest way to go.

But, again, how to get there? There are complicated papers that offer solutions far more well thought than what I'm about to offer. The goal here is to keep it simple. Let's say the typical driver logs 12,000 miles a year, and the typical car gets 20 miles to the gallon. (You would use actual statistics to figure out what these averages are.) An extra $2 a gallon gas tax (i.e. going from $0.184 to $2.184) would cost the typical driver $1200 a year, or $100 a month. (12,000 miles divided by 20 miles to the gallon = 600 gallons consumed @ $2 a pop.)

That's a hefty hike even in good times, and one could argue that, well, tough, we need that money to pay for huge infrastructural investments that move us towards a less petroleum-dependent economy. But let's instead make this as revenue-neutral as possible. Additionally, let's make this really progressive, so we help poorer people proportionately versus richer people. So we'll give everyone a $100 a month payroll tax credit. That means that in aggregate the federal government collects no more and no less than before; it also means that the average driver also pays no more and no less each year.

Of course, some people make more than others, and some drive more than others. Let's simplify our example by considering four types of people: rich urbanites like me make a lot of money and don't drive a lot, poor urbanites make little money and don't drive a lot, rich ruralites make a lot of money and drive a lot, and poor ruralites make little money and drive a lot.

* Poor urbanites are the big winners; they'll get $1200 a year in payroll tax credit and pay less in higher gas taxes; and that $1200 in payroll tax credit may represent a huge windfall for them, not to mention the fact that many urban poor don't drive at all so are completely unaffected by a gas tax hike.

* Rich urbanites also win: they'll get $1200 a year in payroll tax credit and pay less in higher gas taxes; of course, since they're rich, a $1200 a year payroll tax credit is not a big chunk of change relative to their income.

* Rich ruralites lose slightly: they'll get $1200 a year in payroll tax credit but pay more in higher gas taxes; of course, since they're rich, and since they're consuming lots of gas, this seems fair.

* Poor ruralites are the big losers here: they'll get $1200 a year in payroll tax credit but pay more in higher gas taxes; of course, some of the problem our country has with poor rural areas is that they've become economically and geographically obsolete, so you could make a case that this crowd can thus choose to either eat the higher cost to stay where they are or move to places that are closer to economic opportunity and are less taxing (literally and figuratively) in terms of auto dependence. (You could also just tweak the numbers so that the federal government has extra money when this transition is made, and then it uses that extra money to help poor ruralites.)

In ten or so years, when the technology is in place to levy user taxes via vehicle miles traveled versus gas consumed, you'd use a similar formula: figure out what the average miles traveled is, run your numbers from there, and then anyone that drove less than that would get a break (which they would deserve, since they're imposing less of a cost on society) and those that drove more would have to pay more (which, conversely, would be fair, because they're imposing more of a cost on society).

Again, others have thought through the mechanics of this more thoroughly than I have; and admittedly, changes are hard to make, especially in tough times. But I argue that our resistance to a gas tax increase speaks to a dependence on cheap gas that has ruined our landscape, environment, and geopolitics, a dependence that needs to be dealt with and changed. (It doesn't help that gas prices are posted on big signs, or that we stand there by the pump and watch the numbers turn, versus payroll tax credits being somewhat invisible to our wallets in contrast.)

And, however clunky my solution is, it can get you to a better price for gas, in ways that don't have to hurt and can even help many poor people. At a more appropriate price, people that are willing to pay will pay, and people that are not willing to pay will conserve. More importantly, the relative permanence of the price hike (as opposed to last summer's run-up) will lead to structural shifts that move us closer to a more sustainable society: land prices will adjust accordingly, land use will account for the scarcity of fossil fuels, and individuals and businesses will modify their behavior to conserve resources that deserve to be conserved.
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