When the White House announced last week that President Obama would pursue a $10-a-barrel tax on oil to fund major transportation system reforms, there were instant denunciations from many politicians, and especially congressional Republicans.
“A $10-a-barrel tax on oil will be dead on arrival in the House,” Rep. Bill Flores (R-Tex.) said. “It is clear that in his last year in office the president is more concerned with his radical climate policies and pleasing special interest groups than providing economic stability for hardworking American families. This proposed tax will do nothing more than raise costs on consumers, who are still struggling with stagnant wages.”
These critics were, in a sense, merely reflecting public opinion at large — much research suggests that gasoline taxes (and the proposed oil tax would certainly raise the price of gasoline) are very unpopular. For instance, a 2015 study of the matter found, “large majorities of Americans (65-70%) oppose higher taxes on gasoline and electricity” (although the research found that different messages about gas taxes can reduce resistance somewhat).
But despite the lack of public support, a large number of economists are convinced that taxes on fossil fuels in general are a pretty good idea. There have long been calls by economists for putting a tax on carbon in all of its forms — not just from burning oil or gasoline. The goal is to address, in economist speak, the “market failure” that occurs in this case because of the “negative externality” that is greenhouse gas emissions.
And what goes for fossil fuels and carbon in general also goes for oil and gasoline in particular, explains Harvard’s N. Gregory Mankiw, who has actually written about a “Pigou Club” of economists who agree that taxing negative externalities is a good idea.
“I think the basic argument is that there are a host of side effects, which economists call externalities, associated with production and consumption of oil,” says Mankiw. “Climate change is one of them. But even putting that aside, there are much more mundane externalities like local pollution, congestion, accidents associated with driving. There’s all sorts of bad stuff that goes along with oil that economists view as a kind of market failure. And the simplest way of fixing a market failure is to tax the activity that’s causing these adverse side effects.”
Indeed, another influential economist, Lawrence Summers, called for a carbon tax in a column for The Washington Post, referring to low oil prices roughly a year ago.
“All of us, when we drive our cars, heat our homes or use fossil fuels in more indirect ways, create … costs without paying for them,” Summers wrote then. “It follows that we overuse these fuels. Advocating a carbon tax is not some kind of argument for government planning; it is the logic of the market: That which is not paid for is overused.”
There are key differences between Obama’s proposed policy and a nationwide carbon tax. First, it only takes aim at part of the total of carbon-based fuels used in our lives. And second, the revenues wouldn’t go where some economists believe they should — to reduce other, less economically justified taxes. Instead, the goal is to spend them on improving our transportation infrastructure.
There have been some attempts to document just how many economists support carbon taxes. The IGM Forum, at the University of Chicago’s Booth School of Business, convenes expert panels to determine views in the field, and in 2011 asked how much a group of economists agreed with the statement: “A tax on the carbon content of fuels would be a less expensive way to reduce carbon-dioxide emissions than would a collection of policies such as ‘corporate average fuel economy’ requirements for automobiles.” Ninety percent of respondents either agreed or strongly agreed.
There may not be any direct polling yet on Obama’s precise policy, but there are reasons to think the support might be similar.
“I will guarantee that the set of economists who support this Obama proposal is a superset of carbon tax supporters,” adds Charles Komanoff, director of the Carton Tax Center, whose website features a long list of supportive economists and scientists. “In other words, every economist who supports a carbon tax will be supporting this Obama proposal, and there will be others as well, who don’t necessarily bleed for carbon taxes, but will say, ‘This makes so much sense because of the infrastructure need and the failure to raise the federal gasoline tax.'”
Federal gasoline taxes have not been raised since 1993. And numerous reports have said that the Highway Trust Fund, which depends upon those taxed for revenues, is in dire financial trouble because of Congress’s continual refusal to raise the gas tax, even when oil and gas prices are exceedingly low.
Alan Krupnick, an economist at the think tank Resources for the Future, said recently that Obama’s idea “has long been championed by many of us at Resources for the Future, although we want the tax to be broad-based — that is, on oil, natural gas, and coal.”
Krupnick added that to make the tax more politically palatable, it might be better to use it not for new spending but to reduce other taxes. “The country would gain doubly in efficiency if the tax were paired with reform of corporate taxation, including a reduction in the corporate income tax. And the political costs of rejecting such an approach out of hand could be high enough to at least give a pause to opponents.”
That doesn’t seem to be in the cards — but there’s at least one aspect of the proposal that’s politically savvy: With radically low oil and gasoline prices, it’s about as timely as it is ever going to be.
“The economic argument is the same whether oil prices are high or low,” said Mankiw. “But certainly politically, it’s much easier to do this when prices are low.”