Thursday, February 23, 2006

$2 Gas Tax

All of a sudden, Bush is on an anti-oil kick. While I will remain sceptical until I see what he actually does, I have to give him kudos for at least bringing the issue up and spending his time giving speeches on it. He is looking at some Fat Knowledge favorites like fast neutron reactors, plugin hybrids and switchgrass ethanol (though, in the short run it will be corn ethanol which is more of a way to turn coal into liquid energy rather than solar power, see post). But, so far he is asking for easy things. No sacrifice required. No discussion of trade offs.

The number one thing he needs to do to show he is serious it to add a $2 gas tax. I was glad to see this write up in the NY Times. CAFE standards are good, but as this Congressional Budget Office report shows, a gas tax is even better to reduce gasoline usage. Ideas like giving hybrids tax breaks and access to HOV lanes sound good, but I fear that they will just allow for hybrid SUVs (can you wait until there is a hybrid Hummer?) that get lower gas mileage than standard compact cars.

SUPPOSE a politician promised to reveal the details of a simple proposal that would, if adopted, produce hundreds of billions of dollars in savings for American consumers, significant reductions in traffic congestion, major improvements in urban air quality, large reductions in greenhouse gas emissions, and substantially reduced dependence on Middle East oil. The politician also promised that the plan would require no net cash outlays from American families, no additional regulations and no expansion of the bureaucracy.

As economists often remind their students, if something sounds too good to be true, it probably is. So this politician's announcement would almost surely be greeted skeptically. Yet a policy that would deliver precisely the outcomes described could be enacted by Congress tomorrow — namely, a $2-a-gallon tax on gasoline whose proceeds were refunded to American families in reduced payroll taxes.

At today's price of about $2.50 a gallon, a $2-a-gallon tax would raise prices by about 80 percent (leaving them still more than $1 a gallon below price levels in Europe). Evidence suggests that an increase of that magnitude would reduce consumption by more than 15 percent in the short run and almost 60 percent in the long run. These savings would be just the beginning, because higher prices would also intensify the race to bring new fuel-efficient technologies to market.

The gasoline tax-cum-rebate proposal enjoys extremely broad support. Liberals favor it. Environmentalists favor it. The conservative Nobel laureate Gary S. Becker has endorsed it, as has the antitax crusader Grover Norquist. President Bush's former chief economist, N. Gregory Mankiw, has advanced it repeatedly.
Time to get out there and convince people that a gas tax is, as Tom Friedman called it, a Patriot Tax and the most important thing we can do to end our addiction to oil.

via New York Times

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