Recent OPEC behavior has shown the importance of reducing oil consumption in the United States. The United States can either sit back and be forced to conserve through higher OPEC prices or take the initiative to conserve oil itself. The two most direct ways to conserve gasoline are a stiff gasoline tax and gasoline rationing.
Contrary to a widespread belief, both rationing and a tax would raise gas prices. Under current government proposals, ration coupons would be legally salable in a "white" market and coupons would have a monetary value equal to the going price; they would in effect be a new form of currency. Whether a consumer used extra purchased coupons or allotted coupons received from the government, the true price of gas would equal the pump price plus the coupon value. Ration-coupon prices would rise until gas demand at the coupon-plus-pump price equaled the available gas supply. If a certain reduction in gas use required prices to rise by, say, a 50-cent tax, the same reduction imposed by rationing would produce a coupon value also equal to 50 cents. The coupon value thus induces lower gas use just like a tax. As long as there is a coupon market, reductions in gas use are voluntary and must be induced by the incentive of higher prices.
The real difference between a gas tax and gas rationing is in the different distributions of the tax proceeds and total coupon value. A 50-cent tax would generate around $50 billion per year in revenue that could be used to cut Social Security taxes or for other public purposes. Rationing, in contrast, would distribute the $50 billion in ration "currency" to the car-driving public. Rationing would be a new welfare program, although with a much wealthier set of recipients than usual and some peculiar eligibility criteria.
The current Carter administration view is to distribute ration coupons on the basis of Car registrations. Depending on the reduction in consumption sought, the annual value of ration coupons might well be around $250 per car. A well-to-do suburban family with three cars would receive approximately $750 per year in cash-equivalent grants; a poor family with one car would get only a $250 grant.
The long-term value of ration coupons would immediately be capitalized in the selling price of every car. If rationing were expected to last a long time, car values could well go up by more than $1,000. A major administrative problem would be preventing owners of junked cars from fixing them up and reregistering them. Rationing would be a boon to Detroit, since ration entitlements would be worth 10 percent to 20 percent of the price of a new car.
Distribution of ration coupons to holders of drivers' licenses would avoid these problems but create new ones. People would try to get additional licenses under false names or in different states. Coupons might be distributed to dead people and people out of the country. Nondrivers might swamp state motor vehicle offices seeking licenses.
Countering these drawbacks, rationing would be attractive in that it would guarantee the government a way to reduce oil use by any prespecified target. There would be clear assurance of being able to meet any international commitments for reductions. When OPEC considered price increases, the United States could negotiate by threatening to reduce directly its consumption by enough that OPEC revenues from the United States would fall. With a gas tax, no one would know for sure whether the United States would reduce consumption by 500,000 or 800,000 barrels per day.
The equity case for rationing is that assistance would be given directly to the people who rely most heavily on automobiles. Since this reliance is partly because of past government policies, there may be a public obligation to minmize the burdens of readjustments, even for those who are well off. Politically, rationing is attractive because it hides the real increase in the price of gasoline and gives Congress $50 billion or so in new ration currency to distribute to voters.
On balance, however, unless there is a major importance to achieving some precisely specified reduction in oil use, a gasoline tax appears superior. Rationing would have the higher administrative costs. The distribution of ration coupons is likely to have only a rough correspondence to valid gas needs. Rationing would, in effect, make large income transfers to households rich or fortunate enough to have many cars or drivers. The gas tax would instead produce tax revenues to be used for appropriate public purposes as determined by Congress.