Monday, October 09, 2006

Republicans and Gas Taxes

Daniel Gross writes about the "emerging" consensus of economists in favor of higher gas taxes. I thought the graphic above was quite telling, about the U.S. in relation to other western countries.

The word "emerging" is in quotes, referencing a theme of the article, which is that it is much easier for people who have worked inside a Presidential administration to advocate for politically unpopular ideas when they are on the outside. That's true but only to a point. It's not that Greg Mankiw ever said anything other than what he now says about the gas tax while on the inside. It's that the President sets the framework for all policy outcomes--not the CEA--even on economic issues. CEA, like every other part of the administration, works to generate the best outcomes within that framework. And if the President is not interested in a gas tax, then it becomes a very short conversation.

Gross quotes me, from a telephonoe conversation last week, as follows:

What gives? Clearly, there is an emerging consensus among economists — right and left — that the nation would be better off, geopolitically and economically, if Americans used less gasoline. “Given the role that imported oil plays today, you can’t continue to be a responsible economist and not talk about ways to reduce that dependence,” Mr. Samwick said. “If you are concerned about the external consequences of imported oil, then you should raise the cost of it.” And free-market economists view a higher gas tax as a more elegant solution than, for example, raising auto efficiency standards.
So it's not that the consensus is emerging because it is new--it is emerging because there is more of an audience for it.

Another issue that is relevant here is that I would propose that the additional gas tax be done in a revenue-neutral way: returning the proceeds in aggregate in the form of progressive cuts to the income tax. Then fix the long-term deficit by raising the whole schedule (again, progressively) of income tax rates. One problem that the President would have if he advocated higher gas taxes without fixing the long-term deficit problem is that he would be accused of paying for his income tax cuts with higher gas taxes. Not a place he wants to be.


Anonymous said...


That graphic of gasoline taxes by country would be much more informative if it was accompanied with similar information on annual miles driven and gallons of gasoline consumed per capita per country.

Regards, Don Lloyd

Daniel Kahn said...

The graph is informative if we remember that the industrial infrastructure in Germany/France/Italy/Japan/England is very different than that of the United States (and Canada).

I would bet that a much higher percentage of transport takes place via rail lines in all those countries as opposed to shipping by truck.

I think in this case, while we have a lot of data that high gas taxes will not ruin an economy, it still pays to be careful. Raising the gas tax by 50% in 2007 and 2008 would be a great legacy for President Bush and would give us much more informative data on the costs of adjustment...

HoosierDaddy said...

"I would bet that a much higher percentage of transport takes place via rail lines in all those countries as opposed to shipping by truck."

Um, no.

In the 1950s, the U.S. and Europe moved roughly the same percentage of freight by rail; but, by 2000, the share of U.S. rail freight was 38% while in Europe only 8% of freight traveled by rail.

Rail transport, especially freight transport, has been on the decline in Europe for more than 30 years. In 1970, railways carried 21% of all freight in the 15 countries of the present European Union. By 2000 the figure was 8.1%. Over the same period the percentage of freight moved by road rose from 30.8% to 43.8%. In fact, rail transport is the only transport mode to have shown a decrease over that period.

The main reason is that rail transport is simply not as competitive as road haulage. Rail transport is less reliable in terms of delivery time. On some international routes, delivery times have doubled or trebled in recent years. This is mainly due to very long stopping times en route, because other trains, especially passenger trains, have right-of-way.

Anonymous said...

I think offsetting a gas tax with a reduction of sales tax on other items would be simpler and less likely to have unexpected consequences. The income tax is an invitation to complicate peoples lives further.

Anonymous said...

"Returning" gas taxes as income tax offset does what for retired and poor who pay none to low income taxes but, are hit head on by gas taxes?

Giving the government more tax money guarantees nothing but mischief.

bakho said...

I question how much reduction in fuel use would be gained by increasing taxes. Fuel is only one component of an individual's transportation budget. Many people respond to higher fuel prices by driving their vehicles longer, not by upgrading to a more efficient vehicle.

If the tax really works, then people would drive more efficient cars less miles and the price of fuel would drop with decreased demand. Then, where would the incentive be to conserve fuel unless a gas tax was allowed to fluctuate to set fuel prices at a target price.

The quickest way to better fuel efficiency is higher standards. After all, we have fuel efficiency standards for refrigerators, air conditioners, water heaters and even toilets. Without the standards, it is a race to the bottom. The race to the bottom is precisely what GM and Ford have done to their own detriment. An increase in fuel tax on top of higher standards would build support for higher fuel standards. If we are really serious about fuel efficiency, we would do both a higher tax AND higher CAFE standards.

Europe is much more compact than the US. Distances goods are shipped matter. More miles = more fuel.

Rail transport in the US is different than in Europe. In the US, passenger trains yield the right of way to freight. There are huge subsidies to highway and road transportation that are not given to railroads in the US. If we are serious about getting trucks off the highways, we would even the playing field.

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Anonymous said...

Here in Canada,

we have very high taxes on gas. I've yet to see a reduction in fuel use or an increase in community transport.
There has to be a better solution than increasing gas taxes to reduce the consumption of oil.

spencer said...

Hoosier -- interesting data.

How much is the US data impacted by the Western coal trains, or are they too small to make a difference?

Just a quick point. The gas tax is nothing new. We had exactly the same debates in the 1970s.

Anonymous said...


What if we used our vast technology and produced more efficient vehicles instead of having the government take additional money from the public and claim it is being used for the good of mankind. I'm sure if the oil companies allowed the auto manufacturers to build a 100 mile to the gallon full size P/U it could be done now. We have cell phones, satelites, and people going to space for gods sake. Make a freakin vehicle that gets better gas mileage.