Carbon Tax Clamor

By Brendan Moore

01.06.2008

We ran a survey regarding our readers’ preferences for encouraging people in the U.S. to use less gasoline a little while ago. We published the surprising results of that survey in this post.

I very much doubt if Ken Rogoff voted in our survey, but the Harvard economics professor did weigh in on the broader subject of a carbon tax on Gregory Mankiw’s blog. For those of you who don’t know who Greg Mankiw is, he is a well-known Harvard economist who is also is a fairly well-known advocate of a gasoline tax. Mr. Mankiw is also the former chairman of The Council of Economic Advisors.


Mr. Rogoff states in his post the very first thing the next president of the United States should do upon taking office is to immediately raise the tax on gasoline by at least $2 a gallon. Of course, he lays out the reasons why he believes this in his post.

But, frankly, it really doesn’t matter how many Harvard professors say a gas tax is the way to go, because no politician, much less the president, is going to stand in front of a camera and utter the phrase, “I want to raise taxes on gasoline”. And they’re definitely not going to say, “I want to raise taxes on gasoline by $2.00 a gallon immediately, as in right now”.

Before I leave this subject, here is something interesting to think about – there is something called tax incidence taught in every freshman tax analysis course. I’m sure the freshman courses at Harvard cover it as well. 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.

But if I were you, I wouldn’t hold my breath on a gas tax. It is not going to happen.

COPYRIGHT Autosavant.net – All Rights Reserved

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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3 Comments

  1. A two dollar gas tax increase would completely destroy this country’s economy. This guy is out of mind. He’s obviously some Harvard egghead that has no idea how regular people live and work.

  2. Think tax-shift and revenue-neutral carbon tax, not a $2 dollar gas tax increase. A politician may not want to stand in front of a camera and say “I want to raise taxes on gasoline by $2.00 a gallon,” but the politician could say something like “I propose that we shift taxes from work to pollution. Therefore, I propose a tax-shift. More tax revenues will be obtained by taxing carbon emissions, with all of the revenues returned to Americans through reductions in payroll taxes or earned income tax credits for those who aren’t working.” Or, the politician could simply promise to return the carbon tax revenues through monthly rebates to all Americans. For more information on revenue-neutral carbon taxes, see the Carbon Tax Center web site.

  3. CAFE works out much better for politicians than a gas tax. It’s so much easier to make the car companies the bad guy when the bad guy is the low price of gasoline and the American public’s desire to burn as much of it as possible driving around a big SUV.

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