Raising tax on gasoline is the most simple and effective policy tool available to decrease the use of oil, but it won’t ever happen because politicians don’t have the guts raise the tax on such an essential commodity.
Politicians fear a massive backlash from their constituents and their rivals.
Two law professors, Michael Levine of NYU and Mark Roe of Harvard, recognise this problem, but they think they’ve figured out how to get a gas tax approved: Rebates!
Here is how it would work: Suppose you are the average driver, driving 12,000 miles a year in a 15 miles-per-gallon car. A $2 per gallon tax would cost you $1,600 a year. You would be unhappy about that. Sure, you would drive less if taxed and next time you would buy a car with better petrol mileage. But you would be so annoyed at the tax that you would not forgive your congressman for voting for it. But if you got a $1,600 cheque or a visible rebate on your taxes, you would understand that you were even: you might even think that with a little life adjustment, you could beat the game and come out ahead.
Your rebate would not change if you used less petrol. So you would have an incentive to keep some of that $1,600 by driving a little less often in a more fuel-efficient car. The country would import that much less oil, produce less carbon dioxide and get that much more freedom to manoeuvre in the international arena.
Why does everything have to be so complicated? Here’s a much simpler solution. Tell the public that the roads are falling apart and public transit is screwed because the tax collected from gas is too low to cover those expenses. We can keep racking up debt to pay for these expenses, or we can raise the tax on gas to cover our costs.
After that, tell the public that they are consuming a commodity that is neither cheap to gather, nor infinite. Here’s a rough draft of a speech and a plan, free for anyone in government to use, penned by our own Henry Blodget:
We hold this truth to be self-evident: When the global economy recovers, fossil-fuel prices are going to skyrocket again.
Why? Three billion new capitalists consuming the same, largely finite resource stream.
If there’s an intelligent argument why oil will stay at $40 into the hereafter when production is relatively steady and consumption is rising, we’ll be happy to evaluate it. But we haven’t heard it yet.
So what can we do about future skyrocketing prices? No mystery: Conserve fossil fuels and develop renewable energy technologies.
Aside from a handful of rich people, though, no one’s ever going to use renewable energy technology until it costs less. And as long as the global economy and fossil fuel prices collapse every time fossil fuel prices spike, it’s going to be a long time before renewable technologies will be consistently cheaper.
So what can we do about that? Make sure fossil fuel prices stay consistently expensive.
With, among other things, a gas tax.
Not a flat-rate gas tax. A floating-rate one…that would adjust to the price of oil (and help minimize price spikes).
And not now, because it would be another hammer blow to the economy. In a few years, so people and industries have enough time to adjust.
For example, the US could peg gas prices at a minimum of $5 a gallon after 2014 by phasing in a tax starting in 2012. Whatever gas would cost on the open market (benchmarked to the price of oil), the tax would make up the difference between that and $5. If the market price for gas went over $5, the tax would disappear.
Yes, free-market folks will scream. Yes, the oil industry will scream. Yes, folks who love Hummers will scream. But we’ll be better off in the end. Folks who want to drive Hummers will still be able to. Our deficit will be slightly less horrific (new tax stream). And everyone will be incented to buy technologies that are better for everyone, helping to launch dozens of new industries in the process.
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