Gas Taxes

10 AM - The NYT runs the following editorial Monday morning as Hurricane Wilma batters its way across Southern Florida.

October 24, 2005
Editorial

Gas Taxes: Lesser Evil, Greater Good

There's no serious disagreement that two major crises of our time are terrorism and global warming. And there's no disputing that America's oil consumption fosters both. Oil profits that flow to Saudi Arabia and other Middle Eastern countries finance both terrorist acts and the spread of dangerously fanatical forms of Islam. The burning of fossil fuels creates greenhouse emissions that provoke climate change. All the while, oil dependency increases the likelihood of further military entanglements, and threatens the economy with inflation, high interest rates and risky foreign indebtedness.

Until now, the government has failed to connect our crises and our consumption in a coherent way. That dereliction of duty has led to policies that are counterproductive, such as tax incentives to buy gas guzzlers and an overemphasis on increasing domestic oil supply, although even all-out drilling would not be enough to slake our oil thirst and would require a reversal of longstanding environmental protections.

Now, however, the energy risks so apparent in the aftermath of Hurricane Katrina have created both the urgency and the political opportunity for the nation's leaders to respond appropriately. The government must capitalize on the end of the era of perpetually cheap gas, and it must do so in a way that makes America less vulnerable to all manner of threats - terrorist, environmental and economic.

The best solution is to increase the federal gasoline tax, in order to keep the price of gas near its post-Katrina highs of $3-plus a gallon. That would put a dent in gas-guzzling behavior, as has already been seen in the dramatic drop in the sale of sport-utility vehicles. And it would help cure oil dependency in the long run, as automakers and other manufacturers responded to consumer demand for fuel-efficient products.

Still, raising the gas tax would be politically difficult - and for very good reasons. The gas tax, which has been at 18.4 cents a gallon since 1993, is painfully regressive. It hits hardest at poor people for whom fuel costs consume a proportionally larger share of their budgets; rural dwellers for whom truck-driving over long distances is an everyday activity; and the gasoline-dependent middle class, particularly suburban commuters, who, on top of living far from their workplaces, have been encouraged by decades of cheap gas to own large, poor-mileage vehicles. Fortunately, those drawbacks can be overcome.

A bolstered gas tax would raise huge amounts of revenue, roughly $1 billion for every penny of additional tax. Some of that money would have to be used to provide offsetting tax breaks to low-income households, such as an increase in the earned income tax credit. Another offset that lawmakers could consider would be to use some of the revenue to buy back S.U.V.'s. The buyback notion is a variation on the "scrappage" idea from earlier crises, when it was proposed that the government buy up old clunkers so that their owners could more quickly upgrade to less-polluting cars. Eventually, the gas tax would pinch consumers less, as revenues from it are used to finance long-term structural changes to reduce oil dependency, including mass transit and research into alternative fuels and technologies.

There is a also a good possibility that, over time, higher gas taxes would not hurt consumers as much as is generally feared. Oil exporters dread gas taxes because the higher gas prices go, the greater the incentive for companies and governments to invest in alternatives. For that reason, economists assume that raising the gas tax - say, by a dollar or so - would not necessarily raise the price at the pump by the same amount. Rather, a tax increase could induce exporters to allow the price of oil itself to fall, in order to keep the price at the pump below the level at which oil alternatives begin to look attractive.

"We know that the days of unlimited, inexpensive gasoline are over," William Clay Ford Jr., chairman and chief executive of the Ford Motor Company, said last week. So be it. Cheap gas is no longer compatible with a secure nation, a healthy environment or a healthy economy - if ever it was. The real question is whether we should continue paying the extra dollar or two per gallon in the form of profits to the Saudis and other producers, or in the form of taxes to the United States Treasurywhere the money could be used to build true energy independence.