The country's weekly gas bill for imported oil is now just under $1.5 billion. Nearly 90 percent of that -- 7 million barrels a day -- is burned as gasoline. In 1977 it sold for about 60 cents a gallon. All signs point to a cost of $1.50 by the end of this year, and $2 per gallon by the end of next year is widely predicted. The difference -- you might call it a tax -- has gone to the OPEC nations and to the oil companies.
The effect on the country's standing abroad is no less damaging. It is hard to square the notion of a great power with the spectacle of U.S. emissaries asking permission of the Saudi Arabian government to fill the Strategic Petroleum Reserve and returning home without protest or recourse when the answer is, "No." That is a weakness no amount of military spending can cure.
So far, all that has been done to brighten the prospect for the coming decade is a few tentative steps to ready an emergency rationing system. Even the process of defining its general outlines cast Congress into an ugly dispute, pitting big states against little, urban areas against rural. Department of Energy employees whose job is to create this standby system say openly that it will never work. The real question, though is whether the country should continue to wait, donkey-like, for the ax to fall, or whether a way can be found to deal with the chronic emergency that is already here.
Gasoline use offers the largest, most quickly available and least painful opportunity to cut imports. If, say 2 million barrels per day can be saved, oil markets will loosen, international tensions will ease and relations with U.S. allies -- who resent our oil gluttony -- will improve. But can it be done without unacceptable economic hardship and intolerable governmental interference in the minutiae of daily life? I believe the answer is yes.
The standby rationing plan that DOE is working on is fundamentally different from the World War II system in one respect. Instead of a do-or-die allotment of non-transferable coupons, the new coupons will be freely bought and sold, with prices quoted in the morning paper and on the evening news. While this change is a big improvement, rationing still has terrible problems. Coupons will be distributed either on the basis of automobile ownership or according to driver's license. Both arrangements are vulnerable to fraud. Under the first, the more wealthy will buy "junkers" to increase their ration and, under the second, people will get driver's licenses in several states.
Other management problems are staggering. Depending on the degree of the shortage and the resulting value of the salable coupons, the coupons put into circulation each year will be worth more than $100 billion -- as much as all the real money now in circulation. Since the coupons cannot safely be mailed, they will have to be cashed in at banks, creating bank lines instead of gas lines. The cost of administering this behemoth will be several billion dollars a year. Worst of all, the system will continue to send consumers the wrong signal -- that gasoline costs much less than it really does -- and block, instead of encourage, the changes that are needed.
The better answer -- one that has so far been dismissed as politically impossible -- is a stiff gas tax with a rebate. I think a tax is feasible because -- though almost no one is yet aware of this -- a rationing system with a free market in coupons and a gas tax with a rebate are functionally the same. Think of it this way: suppose gas is selling for $1.50 a gallon, and rationing coupons are selling for $1. The point is that the real cost of the gasoline you buy is not $1.50, but $2.50, because if you hadn't used the coupon for gas you could have sold it for $1. Why, then, couldn't the government sidestep all the problems of printing billions of coupons and simply send you green coupons -- money -- instead? The reality is no different from a $1-a-gallon gas tax with a similar rebate from the government.
Robert Williams of Princeton University has proposed a simpler system. He suggests a gas tax that would bring the price of a gallon of gas to $3. The entire proceeds -- estimated at $150 billion in the first year -- would be returned to individuals and corporations through the existing income tax and Social Security systems. Each adult American would recieve a $730 rebate from the government, and therefore the real cost of gasoline to the consumer would depend on how much he uses.
Because the poor drive far less than other income groups, they would receive a net gain; the carless, two-adult family would be $1,500 richer. Today's average family could beat the tax either by driving 25 percent less in a 14 mpg car or by driving the same 14,000 miles in a 19 mpg car. The wealthy two- or three-car family would pay closer to the full price at the pump. For everyone, however, the price at the pump would look like $3, and consumption would drop accordingly.
Nobody wants to pay $3 for a gallon of gasoline, but the truth is that Europeans are already doing so and we will soon be too. The choice is not whether, but to whom -- OPEC or ourselves. A tax with a full rebate would not increase inflation (the CPI would rise, but that could be adjusted for). It would buy us back a measure of independence and the respect we have forfeited by being unable to take our fate back into our own hands.