With Detroit’s Big Three in Washington this week essentially pleading for their lives, economists are abuzz with ways to revive the auto industry. One of the most interesting proposals, though not new, was recently outlined in The New York Times in an op-ed that proposed a radical change in the gas tax. As per the proposal, the government would institute a $3.50 per gallon price floor, taxing gas if it dips below that price.
It is one of those issues that everybody except politicians loves to talk about. Some say the gas tax is a surefire way to decrease our nation’s oil dependency, but nobody wants to be seen advocating an increase in taxes. But as Barack Obama preaches change in government while also pushing for a new green agenda, the gas tax might emerge as a radical new possibility in government.
The gas tax dates back to a one-cent-per-gallon rate in 1932. Thanks to inflation and various increases, the federal government currently has an 18.4 cent tax on a gallon of gas, in addition to each state’s own tax on gas. The average state tax is 28.6 cents to the gallon. That money is often used for transportation projects, like road reconstruction or alternative energy initiatives. But the real benefit of raising the tax would be in simply driving up the price.
For such a politically toxic issue, it is also simple common sense –- raising the tax would drive up the price of gas, discouraging people from using it. Economists have even come up with different rebate schemes to help dampen the blow of the increased tax. Under most proposals, part of the revenue from the tax would go back to drivers (especially low-income drivers), and the rest would go to researching alternative energy and transportation reforms. That way, the net cost wouldn’t be so dramatic and the political fallout might not be fatal. Others are proposing that the tax revenue go to the auto industry to design fuel-efficient cars, so that eventually the hike in gas prices wouldn’t be noticed because it would take less gas to drive.
But the real idea is eliminating dependence on oil. With prices going up, consumption will drop. People would be opposed to driving, looking to other forms of transportation. A similar idea has been suggested for reducing youth smoking, by raising the price of cigarettes.
Of course, as the elder George Bush can attest, raising taxes is an easy way to guarantee an early retirement in politics. So no sane person will advocate raising the gas tax, especially now that gas prices are lower (but don’t get too used to that) and drivers are actually happy. But as the green movement grows and oil increasingly becomes a dirty word, we might be looking for radical measures to reduce our dependency on fossil fuels.
If Obama is serious about changing the face of politics, it would be appropriate to consider a gas tax hike with a rebate. By putting the idea in the political sphere, he could at least raise the debate and get people talking about it. The energy crisis isn’t going to go away and fuel prices won’t stay low forever, so a gas tax hike might be in our future. But at least this time we’ll know exactly who to blame.