ALTHOUGH the price of gas has plummeted to its lowest level in years after spiking in the summer, the industrialized world’s dependence on fossil fuels is still a major obstacle in the face of combating climate change. Optimists point to the technological advancements in the wind and solar power industry, but cheap oil and the global economic downturn have made it difficult for alternative energies to compete with coal and petroleum – at least in the short term. Some, like Secretary of Energy in waiting Steven Chu, have advocated raising the U.S. gas tax to provide an incentive for consumers to use less energy and buy more fuel-efficient vehicles. A revenue-neutral increase in the federal gas tax is the first step towards reaching the country’s environmental and energy-related goals.
The long-term benefits of more expensive gasoline were experienced firsthand just a few months ago. In its latest annual report, the American Public Transportation Association claims, “In the first six months of 2008, ridership continued to grow at record levels.”. Traffic Volume Trends in 2008, compiled by the U.S. Department of Transportation, estimate that 89.2 billion less vehicle miles were traveled that year as of October. Upping the federal gas tax – which was set at 18.4 cents per gallon in 1993 and has not risen since – would encourage Americans to live closer to their place of work, carpool, and invest in cleaner energies.
Higher fuel taxes do not have to be an additional burden on struggling families; they could be offset by a federal payroll tax deduction. An article by Charles Krauthammer in the January 5 Weekly Standard Magazine argues that a fixed quantity – the dollar amount of the gas tax hike multiplied by the average mileage driven per person in a given time frame – should be deducted from an employee’s federal income taxes for that same period of time. The amount could also be added to one’s unemployment check or Social Security payment. Some may claim that this flat refund value would benefit the rich, who tend to drive more, but Krauthammer points out that “the rebate is mildly progressive” and “the lower wage earner gets a slightly greater percentage of his payroll tax reduced than does the higher earner.” Proposals like this one leave consumers with the same spending power and would actually improve the economy. As George Mankiw, an economics professor at Harvard, notes on his blog, “Consumption taxes are better than income taxes for long-run economic growth, because income taxes discourage saving and investment. An increased reliance on gas taxes over income taxes would make the tax code more favorable to growth.”
Aside from enhancing saving and investment, a revenue-neutral gas tax increase would also support the American auto industry. The bailout terms require Detroit to build fuel-efficient vehicles, which will not be bought if the price of gas remains low. A December 26 editorial in The New York Times noted, “As gas prices declined between 1981 and 2005, the market share of sport-utility vehicles, pickups, vans, and the like jumped from 16 percent to 61 percent of vehicle sales in the United States.” It seems that principles of economics, rather than an affinity for tighter, less powerful cars, are at work. The same column reports, “It took a gallon of gas at $4.10 to push the share of light trucks down to 45 percent in July. But as gasoline plummeted back to $1.60 a gallon, their share inched back up to 49 percent of auto sales in November.” By accelerating the movement towards cars featuring more miles per gallon, the government would also be providing an incentive for innovation. This is something much needed, as the popularity of Toyota’s Prius shows that American car companies are already behind the curve in terms of designing efficient vehicles.
The United States is the world’s biggest oil consumer, and a decline in demand would certainly impact the price globally. Some worry that discounted oil for China, India and other developing nations will diminish American international power. However, the real losers from lower world oil prices are the oil-exporting countries, many of which are a threat to national security. Krauthammer contends cheap oil is “a huge blow to overseas producers, particularly ones with relatively large populations, (and) nationalized industries…such as Russia, Venezuela and Iran.”
Raising the gas tax is no magical remedy that will solve all of the country’s energy problems. But other measures like keeping tax breaks for purchasing hybrids in place (these go away once a model reaches 60,000 in sales), reforming Corporate Average Fuel Economy standards, and catching up in nuclear power development will not take place unless there is a reason to enact them: higher gas prices.
Mitch Ross’s column usually appears Thursdays in The Cavalier Daily. He can be reached at m.ross@cavalierdaily.com.
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