Talk of Raising Gas Tax Is Just That
Wednesday, October 18, 2006
There might be a simple way to trim U.S. oil imports, reduce greenhouse-gas emissions, encourage alternatives to petroleum and ease world energy shortages.
The method: raising taxes on gasoline or crude oil. Economists and policy experts across the political spectrum think it's a good idea. And with gasoline prices falling, now might be the perfect time to do it without eliciting cries of pain from U.S. drivers who have become somewhat accustomed to high fuel prices.
But on the long road to a new energy policy, the idea of a higher gasoline or crude-oil tax is just another bit of roadkill.
Because of the thorny politics of raising taxes, the 18.4-cent-per-gallon federal gas levy hasn't changed since Oct. 1, 1993. And few policy experts expect a higher tax soon.
"We know the broad contours of some things that have to happen," said Douglas Holtz-Eakin, former director of the Congressional Budget Office who is now at the Council on Foreign Relations. "You have to price oil on a permanent basis to provide incentives to shift away from it. It's the key issue -- and the hardest one to make progress on."
Leon E. Panetta, a former congressman and President Bill Clinton's first budget director, sees things the same way.
"I don't think there's any question that as a matter of policy it makes a lot of sense to move in that direction," he said. "But politically it's a very high hurdle to get over."
Panetta knows from experience. When Clinton took office, Vice President Al Gore argued for a big gas-tax increase to promote conservation, and many administration members agreed, Panetta recalled. But, he said, "there were also those like Treasury Secretary [Lloyd] Bentsen who said, 'Are you out of your mind?' "
By the time Congress was done, what started out as a 50-cent-a-gallon proposal ended up as a 4.3-cent-a-gallon increase. Since then, just to keep up with inflation, the tax would have had to rise 6 cents, but it hasn't budged.
Many economists support oil taxes because otherwise the prices paid by consumers do not include costs -- such as pollution -- that society pays separately. Senate Foreign Relations Committee Chairman Richard G. Lugar (R-Ind.) has estimated that the U.S. military cost of protecting Middle East oil supplies runs around $50 billion a year.
Such hidden costs were called "externalities" by the British economist Arthur Pigou. N. Gregory Mankiw, an economics professor at Harvard University and former chairman of President Bush's Council of Economic Advisers, has created his own Pigou Club, which he describes as "an elite group of economists and pundits with the good sense to have publicly advocated higher Pigovian taxes, such as gasoline taxes or carbon taxes." But the club exists only on his Web site.
One member is Kenneth S. Rogoff, a Harvard economics professor and former chief economist of the International Monetary Fund. "A sharp hike in energy taxes on gasoline and other fossil fuels would not only help improve the government's balance sheet, but it would also be a way to start addressing global warming," Rogoff wrote before the IMF and World Bank meetings in Singapore last month. "What better way for new U.S. Treasury Secretary Hank Paulson, a card-carrying environmentalist, to make a dramatic entrance onto the world policy stage?"