The Car Talk Graduated Gasoline Tax.

Great Debates
21

What a gas tax has going for it is that it is solution-neutral, and least disruptive of the market for alternative energy than anything else. Take a tax break for hybrid cars - that pushes people in favor of one specific technology, at the expense of others (such as clean diesel or ethanol). The same goes for tax breaks for ethanol production, or other attempts to micro-manage the energy market.

Governments are horrible at picking winning and losing technologies. They should not meddle in what the market does best. So if you need to change behaviour on a large scale, the best way to do that is a flat tax universally applied, and then to sit back and let the market figure out how to adjust to the new economic reality.

The same can be said for CAFE standards and speed limits designed to save fuel. CAFE standards have distorted the market by pushing people into light trucks and SUVs. Low speed limits get ignored, and have unintended consequences.

Get rid of them all. Open up the transportation market and let people choose what they want. However, institute a carbon tax. When you buy a vehicle, its carbon emission is rated. Then you report mileage each year on your tax form (subject to audit like any other receipt), and pay taxes on the carbon you pumped into the atmosphere. Now you’re free to lower your taxes by driving less, or driving a smaller vehicle, or going with an alternative technology like electric or a hybrid gas/electric vehicle.

Of course, the problem is that by the time such a bill wound its way through the governmnent, it would have so many exceptions tacked onto it that it would be hellishly complex to administer. But in concept, I believe that’s the right way to approach the problem.

22

A carbon tax like you described could be paid at the pump. No need for all that paperwork.

To the extent that people are myoptic or poor at juggling many considerations when buying an auto, TANF standards might make sense[sup]1[/sup]. They will, however, create certain distortions: politics may lead to certain models being favored and some consumers will sidestep them by purchasing used gas-guzzlers.
[sup]1[/sup]Though frankly, the case for energy regulation applies better to small appliances, where in practice most consumers won’t bother to give great thought to their pruchasing decision.

23

One of the big distortions that CAFE standards create is to push people away from new cars and into used cars, which typically are much worse for emissions, safety, and fuel economy. By applying a carbon tax, you remain agnostic as to HOW the consumer cuts his consumption. And that’s a good thing, but it’s almost impossible to see happening because politicians are all about control and micro-management. They get funded by special interests, and make their bread and butter by working to trade off what their district wants against what people in other districts want. It’s all about loopholes, special privileges, and keeping yourself in the middle of everything.

Even the ones who want the best for the country as a whole generally can’t resist the temptation to micro-manage industry and do it ‘better’ than everyone else. Much better to have a zillion programs that you can take credit for, or lobby against, and which justify your phony-baloney job.

24

Is there concrete evidence for that and the magnitude of the effect?

I mainly agree with you that the tax approach would in principle be better. However, to be fair to the politicians, I think the reason that they avoid it has less to do with them wanting to give up control and more to do with the fact that it is not a very popular position with most voters. By contrast, voters appear to be much more supportive of CAFE standards. (You may claim that this amounts to an effective tax and I won’t necessarily disagree with you. However, things are kind of complex. The automobile industry seems to have decided that people prefer the increases in engine efficiency to go into greater power and size of vehicle rather than fuel economy. [And, maybe to the extent that this had succeeded in the market, it may be true…although the auto companies have also worked hard at creating the demand. If the SUVs were really a good practical choice for all of the consumers that they are marketed to, one would expect to see ads that actually appealed to consumer’s intellectual side rather than their more base instincts.] However, another way that people “vote” is through the political process and in fact they seem to be fairly supportive of higher CAFE standards.)

25

Actually, this link suggests that American’s attitudes toward higher gas taxes are somewhat more complicated than I thought…It all depends on what you say the money will be used for!

26

---- Is there concrete evidence for that and the magnitude of the effect?

Yes, but I can’t find the cite: the paper was from the 1980s, IIRC. Sorry.

Ammo for Sam: Andrew Samwick provides three reasons why he thinks, “…CAFE standards are lunacy as currently conceived…” More elaboration here. Following jshore, Brad DeLong notes that, “From Congress’s point of view, CAFE is useful because it keeps people from thinking that Congress is taxing them.”

27

Fair enough, and a good point. But why not just give tax incentives on CO2 emmissions in general instead of specific technologies? It wouldn’t matter if you get your energy from wind and solar, if you use nuclear to fuel your PHEV, if you get a hybrid made out of carbon fiber that gets 60mpg, if you use biomass, etc. If you end up producing X pounds less CO2 due to your usage of renewable energies and fuel efficiencies you get a rebate worth $ dollars.

28

I see that was mentioned, but I’m talking about energy in general and not just a pay at the pump CO2 tax. Something like solar water heaters or the green option at a power company would be just as relevant as a PHEV powered by nuclear energy.

29

Rather than .50/yr, I'd make it a .01-.02/mo increase for 10 or 20 years. A bit more paperwork perhaps, but nobody will get hit with a huge slam right away. There’s no incentive to stock up on gas the day before the new tax hits. It also provides clear indication that the price WILL be going up much higher in the future, so you better start making decisions based on that. You have time to make those decisions as well because the changes aren’t drastic.

The problem was created over decades, you can’t fix it in just a few years.

30

But how would you measure how much CO2 was being produced without introducing a horribly complicated layer of administration? I agree with Sam Stone, a carbon tax would be better. However, I think this would be better implemented as a straightforward gas tax to elimiate all the additional tax reporting requirements.

31

No. Europeans drive less, as they have less distances to drive.

Germany= 230 people/KM2
EU as a whole = 114 people/KM2
USA= 30 people/KM2.

So, taken as an average, the average American has to drive around 4 times as much as the average European and and nearly 8 times as much as the average German. Being closer together- to shopping, to work, and to visit Aunt Gertrude helps a lot. It also means that Mass transit is much more effective economically. The USA does have decent Mass transit- in such places as SF, where the pop. has a high “european” density.

Thus, the higher taxes on gas in Germany have less effect on the average German. They can charge more for gas as the effects are smaller. It is NOT that the higher charges for gas have led so much to smaller consumption- the consumption was always smaller as the distances have always been smaller.

The problem with higher gas taxes is that while hurting the guzzler who commutes 25 miles in his Hummer (earning $120k), you also hurt the single mom (earning $30k) who commutes 25 miles in her Chevy Impala (which gets decent milage). Now sure their gas bill is about the same as a % of their income, but the Hummer dude has more free cash to pay for his gas- and extra $100 a month is nothing to him, while just an extra $25 really hurts the single mom.

I am not opposed to a modest increase in gas taxes- while also making US Auto manuf increase their milage and leaving the Tax credits in place for alt-fuel and hybrid cars.

32

The more complicated these tax plans are, the worse they are, because complexity can cover over a multitude of sins.

So. No rebates. No vouchers. No rationing. No record keeping. No different tax rates for different people. No subsidies.

A tax per gallon is the only thing that makes even a lick of sense. And the tax must be paid at the pump. People with gas guzzlers will pay much more tax than people with efficient vehicles, simply because they buy a lot more gas. The only way to hit gas guzzlers with a special tax is when the vehicle is purchased.

If the concern is for poor families who won’t be able to commute to their minimum wage jobs any more, then increase the EITC, NOT give them a special gasoline tax rebate.

Remember, we don’t want to subsidize gasoline usage for poor people, that encourages gasoline use. If we want revenue neutrality, figure out how much to raise the Earned Income Tax Credit to offset the gas tax increase. And then it’s up to the individual poor person how to behave. Do they use the extra money to pay for extra gas? Do they quit their job and get a new job closer to where they live? Do they ditch the 4 door sedan and get a moped? Take the bus? Carpool? It doesn’t matter HOW they reduce consumption, every person can have a different solution, and the more different solutions there are the better. The point is, we shouldn’t encourage people to buy more gasoline when the idea is to encourage them to buy less gasoline.

Basing the tax on carbon emissions is the best way to go if we’re worried about global warming. Plus add in some extra taxes for particulates and other nasties. Each fuel type will be assigned a tax based on how much pollution it causes, exactly what that number should be would inevitably be a matter of yearly wrangling in congress. We should be adding in 10-20 cents a gallon for the next ten years, 50 cents a gallon seems like too much.

So, no subsidies, no tax breaks, no Manhattan projects, just increase the tax on gasoline and increase the EITC for the working poor. Done and done.

33

That’s only part of it, though. The difference in American and European gasoline consumption cannot be explained only by the greater population density of Europe. Europeans on average are not only driving shorter distances, they are also walking more, bicycling more, and taking more public transit.

For example, here in the Netherlands, one- to three-mile trips that most Americans think they need a car for are routinely made on bicycles. It’s not just that Europeans are using less gas because they have shorter distances to drive; in many cases, they’re using less gas because they’re not driving in the first place.

No, you mean the average American has that much more distance to cover, not that he/she necessarily has to drive more.

How much distance you have to cover for a particular trip does indeed depend largely on the size and population density of where you live. But how you choose to cover a distance of a given size depends on other things.

Right, and one of the other things that makes mass transit cheaper by comparison with the private automobile is the high cost of gasoline.

But even in cities, American mass transit tends to be far inferior to that of European cities, because most people still take it for granted that their primary transportation will be the automobile.

You’re half right. Yes, due to smaller distances and higher population densities, per capita gasoline consumption would doubtless always be less in European countries than America even if there were no tax differential. But that doesn’t mean that the high European gas taxes aren’t playing a significant role in keeping consumption low. As this article notes,

34

Excellent point. At the moment we have a pretty good handle on a problem - too much use of a dwindling resource and causing too much pollution, but not on the solution. So tax the problem and let the market determine the solution.

I don’t want to pay for a bureaucracy to administrate that. You’d have to keep changing it every time someone claimed to have a way to reduce emissions. The gas pump is a gateway everyone goes through that’s easy to measure. You use 10 gallons of gas, you pay 10X. 100, you pay 100X.

35

Bold mine.

This is a point of contention, I want the poor and middle class to have a cheap source of energy, it helps our economy and raises our standard of living. We have one of the most prosperous nations on earth, and one that the wealth is spread over the population better then most nations (yes I know there is a big difference between Bill Gates and a single mom in the ghetto, but the mom most likely still has and place to live, food, a TV, cable, telephone, perhaps a car, name brand sneakers - hard to call that poor in world standards).

With a increased cost per gallon you are hurting the most vurerable the most and that to me is unacceptable - a gas tax should never have been implemented - ever. If anything it should be subsidized.

36

OK, you want to subsidize gasoline use. That means…more gasoline use. Which is what you wanted to decrease.

Look, it’s pretty simple. Suppose you increase the gasoline tax such that your average poor person gets hit with $1000 per year in new taxes. Two ways to handle that. You could give the person a rebate on their gas taxes, such that they pay exactly the same as before when using the same amount of gasoline as before.

Or you could just hand them $1000 and tell them to figure it out for themselves. If they use the same amount of gasoline, they’re no worse off than before. But if they use less gasoline, they’re much better off.

The first solution encourages gasoline consumption, the second one discourages gasoline consumption, but both cost the same in terms of forgone tax revenue and both benefit the poor person the same. See the difference?

Or you could subsidize poor people in indirect ways, like building and subsidizing mass transit. Make a bus or subway ride free or nearly free. If the working poor person continues to insist on driving their gas guzzler, then that’s their choice. But they can save a lot of money by taking subway instead. And when people complain about the high cost of gasoline, tell them to shut up and ride the subway if they don’t like it.

Increasing the EITC subsidizes the working poor without insisting on any particular method of dealing with the high cost of gasoline. And each working poor person can choose exactly what method of dealing with the high cost of gasoline would be for themselves, it would likely be different for each working poor person. Some can choose to bike, some can chose to use a moped, some can choose busses, some can chose subways, some can chose moving, some can chose carpooling, some can choose paying the high cost of gas.

But the cardinal rule of changing decisions through the tax code is don’t subsidize something you want to discourage, and don’t tax something you want to encourage. Subsidize gasoline consumption for the poor, and guess what? They’re gonna use more gas.

37

And that’s what I want.

38

Why on earth would you want that? Do you have a large investment in Oil? :confused:

Jim

39

It also helps that your country is flat.

40

Kanicbird, no offense, but your solution is crazy.

Suppose cheap transportation really is a cornerstone of American’s prosperity. It still doesn’t make it rational to subsidize transportation.

Would you rather have a $1000 voucher that you can use to defray your transportation costs…or $1000 that you can spend on anything you like? Sure, it would be nice to have the voucher. But cash is better. What if you don’t plan on consuming $1000 worth of travel this time period? What if you’ve got better uses for the money? What if you figure out a way to save $500 on your transporation bill, but don’t bother to do it because the savings is less than the subsidy?

The $1000 cash is prefered by the recipient, it is prefered by merchants, it is prefered public policy, the only people who would want to mandate that $1000 transportation purchase are people in the transportation industry. And you don’t even want to give people a $1000 transportation voucher, you want to give them a $1000 GASOLINE voucher.

This is insanity.