Wednesday, March 01, 2006

Gas Tax Poll

The latest poll on Americans' attitudes toward an increased tax on gasoline provides the typical Rorshach blot result: there's something here to support every pundit's ex ante view of the issue. Tom Friedman of the NY Times sees it as clear evidence that only a bit of leadership is required, and the country will line up behind higher gas prices and queue to buy more efficient vehicles, which, by the way, the poll suggested carmakers should be forced to produce. I know this is an idea I should either be for or against, but I find it hard to muster enthusiasm for more than neutrality, because I regard an increased gas tax as such a mixed blessing.

There's little doubt that higher gas prices would reduce demand over time. We saw evidence of this in the short-term adjustments to the Katrina price spike last summer. We also have the example of the late 1970s and early 1980s. Gas taxes are certainly one way to get prices up and keep them there, separating them from the underlying roller-coaster of crude oil prices and refining margins. They would also provide extra revenue for a government stuck with intractable deficits. Each 10 cents of new federal gasoline tax would raise about $14 billion a year. And as I suggested recently, they are a lot better for the economy than more extreme measures such as an oil import tariff. Unfortunately, I'm just not sure raising the gas tax would be quite the panacea its supporters imagine.

First, there's already no shortage of fuel-efficient car models on the market. If consumers had simply bought cars--not hybrids, but the sedans and station wagons already widely available--instead of SUVs for the last 20 years, we would currently use over 400,000 barrels per day less gasoline, roughly 5% less than we do now. Nor is automobile fuel economy necessarily the key issue; Americans now drive 2000 miles per year more than they did in 1985, and that costs us an extra million barrels per day of fuel. Backing that down will require not just more frugal vehicles, and lots of them; it will entail serious lifestyle adjustments.

Nor is it clear that even steep gas taxes can, by themselves, deliver meaningful levels of energy independence. We have to look to Europe to see why. European gas taxes are far in excess of what we levy, here. Gas in Europe today costs between $5 and $6/gallon, and the difference is essentially all tax. That means that European gas taxes are running at $3-4/gallon, compared to combined US state and federal gas taxes of $0.25-0.60/gallon. Despite this difference, which has been sustained at proportional levels for many years, Europe remains more dependent on oil imports than the US, with nearly a third coming from the Middle East.

Raising gas taxes also requires serious consideration regarding the taxes on other fuels. If diesel is left alone, to protect interstate trucking, we will start down the path of automobile dieselization in the manner of Europe. Diesel cars are nearly as efficient as hybrids at a much lower cost premium, but they increase emissions of some local pollutants. And should corn ethanol be given an even larger subsidy, by exempting it from any gas tax increase? Even in light of the latest findings that it creates about a 20% net energy gain vs. gasoline, grain ethanol production is already subsidized to the tune of more than $1 billion per year, at the current rate of $0.51/gallon. That's sufficiently generous for an program that benefits agricultural interests more than energy. What about natural gas? Should it be further advantaged relative to taxed gasoline, or is it senseless to promote its use in cars when we aren't even sure we will have enough in the future to heat our homes and run our industries? As you can see, this isn't just a simple question of raising taxes on one fuel.

The poll does suggest that Americans would support a gas tax, if they saw the proceeds helping to fund alternative energy R&D or reducing climate change. However, I'd be a lot more convinced of the durability of those views, if every price spike didn't prompt such an outcry about gouging, and calls for releasing oil from the Strategic Petroleum Reserve, in order to shield consumers from the impact of higher prices. Either high gas prices are good--regardless of the cause--or they are bad. If the proof is in what we do, not what we say, then the new poll results need to be viewed with a very jaundiced eye, especially for something the results of which are so far from the slam-dunk its proponents suggest.

1 comment:

Geoffrey Styles said...

Warner Carter said...
"WASHINGTON, D.C. -- Two-thirds of Americans would vote against a state law that would increase the gas tax by up to 20 cents a gallon, with the revenue going toward improving roads and bridges and building more mass transit. Three in 10 Americans would vote for an increase in the gas tax in their state."

Original comment removed due to unauthorized commercial link.