02-09-2002
SOCIAL STUDIES: A Higher Gas Tax Is the Answer. Who'll Ask The
Question?
The Bush Administration's fiscal 2003 budget begins with a ringing wartime
summons from the commander in chief himself. "Americans will never
forget the murderous events of September 11, 2001," says President
Bush in the opening words of his budget message to Congress. "They
are for us what Pearl Harbor was to an earlier generation of Americans: a
terrible wrong and a call to action."
What sort of action? "Bold" action, says the President. To wit:
"I ask Congress to raise by more than 80 cents, to $1 a gallon, the
federal tax that Americans pay on gasoline-and to increase low-income
energy assistance and other programs that will help the poorest pay. This
will be burdensome for many, but paying a surcharge on gasoline is one way
all Americans can help fight terrorism, because it will finance our war
effort while bringing closer the day when we can declare energy
independence from regimes such as Iraq, Iran, and Libya. I call that a
good bargain."
Wow. That is big news. Pity it didn't happen. As you have probably
guessed, the entire quotation in the paragraph above is made up-with the
exception of the word "bold," which Bush used to describe his
program. Bold he has been: bold enough to beat the Taliban and rout Al
Qaeda, bold enough to reorganize America's security relationships with
countries all over the world, bold enough to launch an unprecedented
homeland security effort, bold enough to create what amounts to a new
justice system for accused foreign terrorists. But not bold enough to
propose a hike in the gas tax.
This seems odd. America depends on oil from dubious friends such as Saudi
Arabia, and from undoubted adversaries such as Iraq and Iran and Libya,
not primarily to heat our houses or power our refrigerators (gas, coal,
and nuclear power can do those jobs) but to fuel our automobiles.
"The key market that we're so dependent on oil for is transportation,
and really not anything else," says Edward Porter, an economist with
the American Petroleum Institute.
As of September 11, every single person in the United States, including
persons in a vegetative coma, agreed that the country's dependence on Arab
oil had become a pressing security threat. Oil is the great empowerer of
tyrants, and tyranny is the great breeder of terror and the great enemy of
American values and interests. Oil induces America to coddle regimes that,
by rights, we should be prodding toward democracy or upending. Oil forces
America to fight a terror network while simultaneously pouring money into
the pockets of terrorism's supporters and enablers.
If not for oil, Islamic dictatorships such as Saudi Arabia-which sits on
fully 25 percent of the world's oil reserves-would be peripheral to U.S.
strategic interests and too poor to finance terror around the world. On
September 10, the Saudis looked pretty reliable, and the threat of Islamic
radicalism seemed far away. Now we know better. Whether wriggling free of
economic dependency on the likes of Saudi Arabia and Iraq should be No. 1
or, say, No. 3 or No. 4 among America's priorities is rationally
debatable. But that it is near the top of the list is not.
On September 10, the federal government was in clover. Despite a slowing
economy and Bush's tax cuts, the question was how large the budgetary
surpluses would be. Then came the war. Now the Administration projects a
deficit of $106 billion in this fiscal year. Moreover, the
Administration's forecast that deficits will decline through 2004 and then
turn into surpluses in fiscal 2005 are conditioned on domestic-spending
restraint that, for the most part, will not happen. Just around the corner
is the retirement of the Baby Boom Generation, which will put still more
pressure on the budget. Unless the war is cheaper, the economy stronger,
or Congress more frugal than seems likely, America now has a potentially
chronic deficit problem.
In short, the world has changed. Before September 11, a steep gas-tax
increase seemed important to environmentalists (who worry that burning
fossil fuels causes global warming) but unnecessary to everyone else.
After September 11, a steep gas-tax increase seems made-to-order to
address the biggest strategic and fiscal problems that the country now
confronts.
One might think, then, that someone in a position of political leadership
would mention the idea; but the silence is deafening. Gas tax? "It's
a political death sentence," one Senate aide says, reflecting the
universally received wisdom. "This is an election year, and I don't
think you're going to find anyone willing to stick their neck out that
far."
Instead, politicians talk about increasing the mandatory fuel-efficiency
standards for cars. (See NJ, 2/2/02, p. 318.) Raising these so-called CAFE
requirements would indeed help reduce gasoline consumption, but at a cost
that the idea's advocates prefer not to mention: lives. Smaller cars are
deadlier cars-particularly, but not only, in collisions with larger cars.
A National Academy of Sciences study panel recently found that the
reduction in the average size of cars since 1976 caused between 1,300 and
2,600 additional fatalities in 1993 alone. (The upper-range estimate is
nearly as high as the estimated death toll in the World Trade Center
attack.) Although a high gas tax, too, would tend to reduce vehicle size,
it would also encourage people to get out of their cars altogether, thus
saving both lives and oil.
Other politicians talk about high-tech alternatives to gasoline:
hydrogen-consuming fuel cells, for instance, and miserly hybrid motors.
Ultimately, such technological breakthroughs offer the only real escape
from dependence on the Saudis. But new technologies are practical only if
they are economically competitive; otherwise, investors will not finance
them, companies will not market them, and consumers will not buy
them.
One way to make new technologies competitive with gasoline is to reduce
the cost of the new technologies, by means of intensive R&D programs
and the like. Fine. But the other way to make new technologies competitive
with gasoline is to raise the price of gasoline. Increase the gas tax,
and, overnight, you make alternatives more attractive to investors and
consumers. Taxing gasoline more heavily and looking for ways to replace it
are complements, not alternatives. Surely a sensible country, in America's
situation, would do both.
It is true that gasoline taxes, like most sales and excise taxes, are
regressive, squeezing the poor hardest; but that problem is surmountable.
"There could be compensating changes elsewhere," says William
Gale, an economist at the Brookings Institution. "We should be
thinking about progressivity and regressivity in the context of the
overall tax system. Not every single feature of the tax system needs to be
progressive to satisfy distributional needs."
In any case, gas prices in America are low today, by both historical and
current world standards. Since 1918, inflation-adjusted gas prices in the
United States have trended steadily (though not smoothly) downward, to
about half the level of the 1930s. Gas taxes total 42 cents a gallon, of
which the federal portion is all of 18.4 cents. As a share of the price
that consumers pay at the pump, total gas taxes (federal plus state) are
about half the rate in Canada and a third the rate in Europe. That does
not make Canada's or Europe's tax rates right, or America's wrong, but it
does suggest that a high gas tax can be consistent with a thriving modern
economy. Moreover, each penny of a federal gas tax translates into about
$1.3 billion in revenue. A federal gas tax of, say, $1 a gallon would pay
for the war effort, and then some.
When America contemplates military action in the Middle East or anywhere
in the Islamic world, the first question everyone asks is: What about oil
prices? A higher gas tax could help mitigate that problem, too: The tax
could be designed to float in partial counterpoint to world prices, so as
to help stabilize the price at the pump. That will matter when the United
States goes after Saddam Hussein.
Yes, tax increases are bad for the economy, other things being equal.
There are 16 barren acres in lower Manhattan, however, that say other
things are not equal. Phase in the tax increase so that it mostly bites
after the current recession is over, and the economy will be fine. Yes, a
high gasoline tax is no one's first choice. It will be a pain in
everybody's backside. Nonetheless, the strategic and fiscal benefits of a
gas-tax increase are such that, post-9/11, it is crazy not to consider
one.
Conjecture: If the President chose to lead on a gas-tax increase, and if
he linked it clearly to American security in the post-9/11 world, the
public would understand and follow-not gladly, but willingly. Perhaps,
however, that would be one step too bold for a country and a President
busy congratulating themselves on the seriousness of their response to
terrorism.
Jonathan Rauch
National Journal
