A better gas tax?

Traditionally gas taxes have been used to fund road building projects.  When they were first levied, gasoline prices were pretty stable, so taxes were so many cents per gallon.  When gas prices spiked in the late 1970s, the gas tax levy started to seem inappropriate.  And as gas mileage for cars has steadily improved, the amount of money coming in from cent per gallon taxes declined.  Some states went to percentage or inflation-indexed taxes. But there are two more issues that should influence gas taxes: one is the associated carbon emissions, the other is the disproportionate impact energy prices have on the economy.

So what would be better?

Consider the second point first: how would you insulate the economy from volatile gas taxes?  Energy costs are an unusual component of the overall set of prices as energy is a continuing cost needed to keep things going.  Capital costs can drop to zero for short times and production might well continue at a high rate, but you can’t have energy consumption drop so low.  Well, you would make the tax increase when wholesale gas prices declined and decrease if wholesale prices rose.  You probably wouldn’t totally insulate the economy, so you might have the tax increase a penny a gallon for each 2 cent decrease in wholesale gas prices.

There are major logistical issues.  One is that this makes the income from gas taxes, already rather unpredictable, become very unpredictable.  Another is that this requires some restraint on the government to not spend piles of money that come in good years.  Perhaps you divide the incoming tax into two piles: one to be used for transit, as most gas taxes are, and one to go into a fund to then support transit projects when the price of wholesale gas is high with some equation dictating how much that fund will release under certain circumstances.  Although mildly more complex than existing gas taxes, this could make it easier to weather price shocks both for the economy as a whole and for transit projects dependent on gas tax revenue.

And what about the whole carbon tax thing?  Obviously the intent of a carbon tax is to make carbon-neutral (or carbon-absorbing) alternatives more attractive.  This could be of the same form as existing taxes; making it revenue neutral (as many would desire) simply requires there be a mechanism for returning money to taxpayers.  It is often stated that such a tax would damage the economy. So when would you want to introduce a carbon tax?  Um, yes, you’d want to do it when gas prices were heading down.  Recently high prices presumably had led industry to plan on $3.50/gallon or higher gas prices; if a carbon tax had been added as wholesale gas prices declined, there would have been no disruption to the economy.  Indeed, unless the tax was very high, there still would have been some stimulative effect from declining gas prices.

Why mention this?  Any attempt to reform carbon and gas taxes is most easily done with a declining price of crude oil.  The fracking boom and Saudi pumping strategies have pushed oil prices pretty far down, arguably about as far down as they can go as most of the shale oil boom requires prices of $80/barrel or higher.  Now would be the time to get real on adjusting these taxes.  Will it happen?  Probably not.  Anti-tax rhetoric and climate-change denial present serious obstacles in Congress, even if such taxes are revenue neutral. So we will probably let another golden opportunity to move forward on straightening out energy taxes pass through our fingers….

Tags: ,

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: