Friday, January 02, 2009

Calls for Increasing the Federal Gas Tax

The National Commission on Surface Transportation Infrastructure Financing, the closest thing we have to a national transportation planning body, will be recommending upping the federal gas tax in an upcoming report.
A roughly 50 percent increase in gasoline and diesel fuel taxes is being urged by the commission until the government devises another way for motorists to pay for using public roads.

The 15-member National Commission on Surface Transportation Infrastructure Financing is the second group in a year to call for increasing the current 18.4 cents a gallon federal tax on gasoline and the 24.4 cents a gallon tax on diesel. State fuel taxes vary from state to state.

In a report expected in late January, members of the infrastructure financing commission say they will urge Congress to raise the gas tax by 10 cents a gallon and the diesel tax by about 12 cents to 15 cents a gallon. At the same time, the commission will recommend tying the fuel tax rates to inflation.

The commission will also recommend that states raise their fuel taxes and make greater use of toll roads and fees for rush-hour driving.
There are several reasons for increasing the gas tax. The one being trumpeted the most is obviously that the revenues pay for upkeep of our transportation system. A reemerging concern is that with low gas prices due to the economic downturn, Americans will again be tempted to buy gas guzzlers. In fact, this trend seems to be already occurring.

Surely the dealerships who this past summer found those large vehicles to be unsellable dead weight will be more than eager to pawn them off on the market segment that doesn't think about the long term when making large purchases. Gas prices are not going to stay low. The only reason they are low is because of the "demand destruction" of the global recession.

Echoing the commission's soon-to-be-released findings are the New York Times and Thomas Friedman. The Times uses the second argument, that higher gas prices will encourage Americans to buy more fuel-efficient cars.
Americans did not buy enormous gas guzzlers just because Detroit marketed them relentlessly. They bought them because they wanted big cars — and because gas was cheap. If gas stays cheap, Americans would be less inclined to squeeze their families into a lithe fuel-efficient alternative.


Americans have flirted with fuel-efficient cars before only to jilt them when gas prices fell. In the late 1970s, for instance, they spurned light trucks as gas prices doubled. But as gas prices declined between 1981 and 2005, the market share of sport-utility vehicles, pickups, vans and the like jumped from 16 percent to 61 percent of vehicle sales in the United States.

The recent infatuation with the Toyota Prius and other fuel-efficient cars could well come to a similar end. It took a gallon of gas at $4.10 to push the share of light trucks down to 45 percent in July. But as gasoline plummeted back to $1.60 a gallon, their share inched back up to 49 percent of auto sales in November.
The editorial suggests a variable tax that would effectively create a floor for gas prices of $4.00 to $5.00 per gallon.

A gas tax would help to train people who do not consider the long-term consequences of their decision to in fact do so, just like regulations on sub-prime mortgages can force would-be borrowers into more reasonable financial decisions. Gas is not going to stay cheap. The International Energy Agency, which might be called notorious for its overly rosy fossil energy outlooks, reported in November that oil prices "will rebound to more than $100 a barrel as soon as the world economy recovers, and will exceed $200 by 2030". When the economy recovers, don't be surprised to see the owners of shiny new SUVs crying wolf again. Those who are heavily dependent on gasoline are between a rock and a hard place: struggling economy plus low gas prices, or burgeoning economy plus high gas prices. There will never be a burgeoning economy with low gas prices. Our best option is a burgeoning economy with greater energy efficiency and alternative sources of energy, so that we don't care that gas prices are high.

So the time is overripe to increase gas taxes, even in this economy. I say "overripe" because the "ripe" times have already passed: the 1980s, coming out of the oil embargoes; the bright, peacetime economy of the 1990s, and the 2000s, when, as Thomas Friedman recalled in his recent call for a gas tax increase,
[i]n the wake of 9/11, President Bush had the political space to impose a gasoline tax, a “Patriot Tax,” to weaken the very people who had funded 9/11 and to stimulate a U.S. renewable-energy industry. But Bush wimped out and would not impose a tax when prices were low or a floor price when they got high.
What we can't avoid in all of our cooing for "fuel efficiency" is the importance of price. As Friedman says,
The two most important rules about energy innovation are: 1) Price matters — when prices go up people change their habits. 2) You need a systemic approach. It makes no sense for Congress to pump $13.4 billion into bailing out Detroit — and demand that the auto companies use this cash to make more fuel-efficient cars — and then do nothing to shape consumer behavior with a gas tax so more Americans will want to buy those cars. As long as gas is cheap, people will go out and buy used S.U.V.’s and Hummers.

There has to be a system that permanently changes consumer demand, which would permanently change what Detroit makes, which would attract more investment in battery technology to make electric cars, which would hugely help the expansion of the wind and solar industries — where the biggest drawback is the lack of batteries to store electrons when the wind isn’t blowing or the sun isn’t shining. A higher gas tax would drive all these systemic benefits.
Yet another reason -- probably the most important -- is climate change. Even the chairman of the American Truckers Association is not opposed to a carbon tax (albeit only if revenues go to highway spending).
Charles Whittington, chairman of the American Trucking Associations, which supports a fuel tax increase as long as the money goes to highway projects, said Congress may decide to disguise a fuel tax hike as a surcharge to combat climate change.

Transportation is responsible for about a third of all U.S. carbon emissions created by burning fossil fuels. Traffic congestion wastes an estimated 2.9 billion gallons of fuel a year. Less congestion would reduce greenhouse gases and dependence on foreign oil.

"Instead of calling it a gas tax, call it a carbon tax," Whittington said. "As long as we label it as something else we may have the momentum and acceptance to move forward." [AP, above]
There may be, after all, a window of opportunity for moving towards the true cost of driving and fuel use by increasing the federal gas tax.


Eric said...

This really is something we need to do, and soon. I highly recommend reading Robert Rapier's (of TOD and r-squared fame) thoughts on this sunject as well. $2-3/gal. fuel taxes phased in over a medium time frame (3-5 years? maybe 7?) should give people the notice and incentive to adjust habits with the knowledge that fuel will have price floors (unlike the years 2004-2008 where gas went from $1.75/gal up to $5.00/gal in some parts of the country and all the way back down). "Consumers" should be better able to make long term purchasing decisions with these standards in mind.

I am attracted to the idea that higher gas taxes make us more immune to price spikes, ie, say untaxed fuel costs $2.00/gal and taxes are at $2.00/gal, the cost of gas increases 100%, then the increase in total fuel cost is only 50%.

You say the most important reason to advocate for higher fuel taxes is for the benefit of climate change. I see it best for the mitigation of peak oil and fossil fuel depletion (not the GCC isn't important). I don't believe that conservation or efficiency does anything to stop (or slow down in the long term) the use or growth in use of non-renewable resources because our economy is based on debt and growth to repay the debt. Jevons paradox in full swing! Taxes that affect the cost of fuel for everyone, however, could (will) have a large impact on it's overall use. We saw it in the summer of 2008 with high fuel costs pushing people to alternative transit and reduced VMT and 1 million barrels shaved off the amount consumed in the US daily. Use taxes (along the Robert Rapierline) to push efficiencies and conservation rather than simply encourage or offer the latter. In a best case scenario I think we could address both CC and PO through the synergies of such a plan.

Now the question is: Is this something Obama and/or a Dem controlled legislative body is looking at?

Eric said...

damn typos!