Start Making Sense

Monday, December 8, 2008

THERE IS a certain unreal quality to current debate over the state of the U.S. economy, national security and the environment. As Detroit's Big Three automakers approach bankruptcy, dangerous oil-exporting states threaten international stability and climate change continues unchecked, Congress and the incoming Obama administration ponder costly and complex proposals to address these related crises. Under consideration are tens of billions of dollars in loans to the car companies; sanctions and diplomacy targeted at Iran, Russia and others; and a cap-and-trade system for carbon emissions. Each of these may have its place. What's striking, though, is that the only idea that seems to be off the table is the one that would address all three concerns directly and efficiently: higher gas taxes. This step would stimulate the market for new fuel-efficient cars; defund mischief-making petro-states; and cut carbon emissions. Not only that, it would reduce traffic, curb urban sprawl and, by giving drivers an incentive to drive more slowly, improve highway safety.

America's state of denial about fuel taxes is not new. But the time has come for it to end. The recent plunge in oil prices has created a golden opportunity. The price of a gallon of regular gasoline, which peaked at over $4 last summer, is now about $1.75. This means that today's drivers are enjoying the equivalent of 1980 prices, according to the Energy Information Administration. Meanwhile, the average per-gallon tax on gasoline is about 40 cents, including state levies. The federal portion of that has held steady at 18.4 cents since 1993; thus, in real terms, consumers have gotten a significant gas tax cut over the past 15 years. This tax should have been indexed to inflation long ago.

Europe's motorists pay far higher gas taxes than American drivers do, a principal reason that its manufacturers (like Japan's) are practiced experts at profitably building fuel-efficient vehicles -- and that the average fuel efficiency of new cars on European roads in 2006 was 38 miles per gallon. In contrast, newly enacted CAFE fuel-efficiency rules would require U.S. cars to get 35 miles per gallon by 2020. The Congressional Budget Office estimated in 2004 that raising the gas tax by 46 cents per gallon would cut fuel consumption more quickly and cheaply than CAFE.

Congress should enact a steep, inflation-indexed hike in gas taxes, one big enough to alter consumer incentives and habits permanently. This would take back some of the de facto economic stimulus consumers have received from the recent drop in gas prices, and it would be a hard sell politically. But surely voters can understand that, even if Congress were to triple the tax to 55.2 cents, gas would still be cheaper, in real terms, than it was in 2005. The increase could be rebated through the income tax system.

Whenever anyone mentions the gas tax, politicians are quick to warn their constituents about the costs; rarely do they mention the benefits. A higher gas tax would buy valuable public goods: national security; a cleaner environment; and safer, less congested streets. No matter what, Americans will have to pay for all of that. Why not do it the simple, straightforward way?

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