Gas Tax

Posted by & filed under CGR Staff, Rochester Business Journal.

Visiting Yosemite National Park last October I encountered a vacationing Brit at the park campground, driving a motor home the size of a city bus. “Must be tough to fuel up with these terrible gas prices, eh?” Looking at me blankly, he replied, “I don’t know what you mean. I could never drive a rig like this in England. Petrol’s a bargain here.” Eager to continue the conversation with my new acquaintance, I blathered on, “But the crude oil price went up worldwide. Your prices must be really awful now.” “Oh, they’ve gone up a bit, I suppose. Haven’t noticed, don’t you know?”

Well, the morning coffee finally kicked in and it all made sense. You see, of the $6.20 per gallon the British were paying last October, $4.05 was tax. Our taxes, on the other hand, average about $.39 per gallon. Remove the tax and gasoline was actually more expensive in the U.S. last October—an average of $2.75 per gallon v. $2.15 per gallon in the U.K. From the beginning of 2004 to October 2005, gas prices had gone up 85% for Americans while the average price paid by the Brits had gone up only 20%.

Yes, you guessed it: I’m going to suggest that we raise the gas tax. Keep reading anyway.
What’s wrong with cheap gas? Let me count the ways:

First, our dependence on gasoline hands enormous power to those countries which, by historic accident, are sitting on lots of oil. The Economist reports that at current prices Iran is earning about $50 billion per year from its oil exports—rather better than the $15 billion per year it earned a decade ago. Worried about Iran’s nuclear ambitions? Let’s stop sending money they can use to hire unemployed nuclear scientists from the former Soviet Union and to buy machinery to enrich uranium. Unhappy about Hugo Chavez? Worried about Vladimir Putin? Stop sending them money.

Second, it isn’t an accident that oil-rich countries are often oppressive and undemocratic. The power we hand these nations through oil purchases is highly concentrated in the ruling clique. When nearly all political and economic power is concentrated in the same few hands, democracy is a long time coming.

Third, gas prices do not capture the costs imposed on the environment from our reliance on cars. Smog, global warming, urban sprawl, uneconomic public transit—Hey, it’s a long list.

I could go on. So I should be delighted with the fact that George Bush got religion (an additional one, that is) and is preaching the gospel of alternative energy. In his 2006 State of the Union address, the President announced the “Advanced Energy Initiative” intended to increase spending on “clean-energy” research.. Tom Friedman of The New York Times has campaigned on this subject for couple of years—and in a recent column titled “Will Pigs Fly?” he applauds the President’s newfound interest in reducing our dependence on oil.

But this new Bush plan sounds too much like Jimmy Carter and the Synfuels Corporation. Or Bill Clinton and the Partnership for a New Generation of Vehicles. Or the Bush administration’s last plan, the Freedom Car & Vehicle Technologies program.

I don’t want the feds spending my taxes on the solution-of-the-month. Funding basic research is fine and an appropriate use of tax revenue. But let’s keep the legislators and bureaucrats away from picking winners, such as encouraging hybrid technology or anointing fuel cells as our energy salvation. Let’s let General Motors and Toyota pick the promising technologies, not politicians.

A whopping increase in the gas tax will square up all the incentives. Automakers will fall all over themselves finding ways to build cars that are fun to drive AND get good gas mileage. Researchers will focus on ideas leading to patentable products that will earn the big bucks, not just the ideas that are in vogue at the Department of Energy.

And a change in incentives will change consumer behavior. It isn’t enough to develop new technology: Only innovations that find their way into the mass market are going to reduce our consumption of fossil fuels. Consumers won’t go green until it takes too much green not to.

A large gas tax has the added advantage, as my Yosemite example demonstrates, of insulating our economy from oil price shocks which we can neither predict nor control.

The quickest way to cut oil prices is to use less. Anyone who wants to occupy seventeen feet of highway in an SUV with a curb weight of 5,500 pounds can pay for the privilege at the pump. Most of us will find a way to burn a lot less gas.

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