Should The Federal Gas Tax Be Raised?

 

Your first reaction is probably one of disbelief. Then perhaps anger. Then again, maybe your reaction is bewilderment relating as to why this would be on a site devoted to auto enthusiasts. Whatever it is, it’s probably not positive.

But, I’ve been pushing for an increase in the gas tax for almost three decades, and although mine was a voice crying out in the wilderness of public opinion for most of that time, apparently some others have now come around to the same point of view. I have noticed an uptick in articles on the subject recently, and authors have been become bolder in their efforts to convince others. The suggestions for the size of the increase generally range from $1 to 2$ extra tax per gallon of gas, phased in over anywhere from a period of five to ten years. My personal preference is for an increase of $2 to be implemented over the next ten years. I realize that it might be difficult to reconcile my push for higher gasoline taxes with the fact that I like to drive so much, but, in this instance, I’m willing to pay more to play.

The reasons for not raising the gas tax are well-known, so there is no reason to devote space to those reasons here. Instead, let’s take a look at some of the reasons people are putting forward to justify a raise in the tax. In no particular order of importance, those reasons are:

Our physical safety – In order to buy all of the oil we need, we currently pay huge amounts of money every day to people that regard our nation as satanic and evil. It doesn’t stop there. There are millions of people in a sub-group of this group that would relish the opportunity to kill as many Americans as possible. Every dollar we send to them gives them greater opportunity to exercise savagery against the United States. Less gas consumed means less barrels of oil bought from people who wish to use the money they get to destroy our country.

The increasing budget deficit – As many noted economists have pointed out, we’re going to be in a very bad way as more and more baby boomers retire and start receiving social security and medical benefits. It will be the equivalent of a slow fiscal cancer, wasting away the country’s health bit by bit. We cannot keep doing what we’ve been doing from a tax perspective and expect everything to turn out OK. It is an economic impossibility. Either taxes have to go up, or benefit payouts must be drastically cut. Most economists agree that even a $1 gas tax increase would result in an extra 100 billion dollars annually, thereby providing some measure of relief to future budget shortfalls.

It’s only fair from a cost perspective – The U.S. federal government has spent and still spends a lot of money ensuring that the oil keeps getting pumped out of various places in the world. This money is spent in the form of wars waged (1991 Iraq War, current war in Iraq, etc.), massive foreign aid to non oil-producing countries that we wouldn’t otherwise care so much about in oil-producing regions (Egypt, Israel, etc.) in order to have an ally and/or influence in those oil-producing regions, and various government subsidies and tax breaks to the oil industry and it’s collection of vendors and suppliers. If all those costs, which are borne by all taxpayers, regardless of their personal consumption of gasoline, were accurately imputed into the costs of gasoline, gasoline would be far more expensive.

Less pollution – Mother Nature is allergic to the stuff that comes out of a tailpipe. Less of that bad stuff around helps all of us here on this planet.

Less traffic – Less people driving means the ones left on the road can go faster. This is good.

It won’t cost as much as you think – As N. Gregory Mankiw, the noted Harvard professor and former chairman of The Council of Economic Advisors, stated in a recent Wall Street Journal article regarding gas taxes, there is something called tax incidence taught in every freshman tax analysis course. Tax incidence states that every tax cost is shared by both producer and consumer. The short version as it applies to this situation is that as a higher gasoline tax drives down consumption, market demand will subsequently fall, forcing oil prices lower. Just like magic, the actual purchase price of gasoline would increase by less than the tax because the cost of the major ingredient would be decreasing at the same time. More beautiful magic – as a practical matter, oil producers like Iran, Venezuela, Russia, and Kuwait pick up some of the cost of our increased tax gas.

It will produce a long-term solution to our oil addiction – As gasoline becomes more and more expensive, alternative fuels and alternative power modes become progressively more attractive and economically feasible. As a bonus, some of these alternatives are better for the environment, i.e., the Tesla, a very fast, very attractive sports car powered by ion-lithium batteries with a 300 mile range, and built by the brand-new Tesla Corporation in Silicon Valley.

It helps the auto manufacturers – Crazy talk? No. Reducing the importance of currently onerous regulatory oversight (fuel mileage requirements) by replacing it with market forces and increasing market certainty (American consumers will want fuel-efficient vehicles in ever-increasing numbers) is a dream come true for car companies, particularly the domestic ones. It is an oft-told lie that the domestic manufacturers cannot make any good vehicles except trucks and SUVs; the focus has been on those products in recent years because that’s what a lot of Americans wanted to buy, the vehicles themselves were highly profitable, and frankly, the domestic manufacturers needed the money. This was without a doubt a short-sighted strategy in retrospect, but one that never would have been followed in an environment of steadily rising gas prices with no possible return to cheap gas. With such market certainty, what’s left of the domestic auto manufacturers will quickly embrace production of high-quality fuel-efficient vehicles as well as alternative fuel vehicles. Don’t believe it? Well, when you have Bob Lutz of General Motors stating recently at the Paris Auto Show that one of the best things that could happen in the U.S. would be a gradual increase in the price of gasoline to the same levels currently in Europe so GM can just get on with the business of making fuel-efficient cars, then you know just how important market certainty is to the automakers. Since most astute people in the car business believe that the U.S. market will look very much like the market in Europe in the future (smaller, more profitable shares of the overall market led by a couple of market leaders), gas prices going up would simply accelerate the ability of Ford, GM, and the Chrysler part of Daimler Chrysler to focus on the future. By the way, in order to achieve price parity with Europe currently, gas prices in the U.S. would have to increase more than $3 per gallon. Tomorrow.

So, good reasons all, but let’s face it, the chances of this happening are pretty slim. No matter how logical it all seems. I am a realist. Instead of planning for the inevitable, most people in the United States would rather put off any sacrifice until change is forced upon them. Most people would never agree to us raising gas taxes on ourselves. But, hey, you never know…

Author: Brendan Moore

Brendan Moore is a Principal Consultant with Cedar Point Consulting , a management consulting practice based in the Washington, DC area. He also manages Autosavant Consulting, a separate practice within Cedar Point Consulting. where he advises businesses connected to the auto industry. Cedar Point Consulting can be found at http://www.cedarpointconsulting.com.

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2 Comments

  1. I must be as crazy as you because I think it’s a good idea. Especially now.

  2. I agree with all of this EXCEPT that the money should go to build mass transit and 50 percent of the tax should be offset by a corresponding decrease in the income tax.

    Other than that, raise it 3 bucks at least.

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