Raise the Gas Tax

[DJ FC]

My man, Greg Mankiw has made the argument to raise the gas tax quite well... I thought I should share:

Raise the Gas Tax
By N. GREGORY MANKIW
October 20, 2006; Page A12

With the midterm election around the corner, here's a wacky idea you won't often hear from our elected leaders: We should raise the tax on gasoline. Not quickly, but substantially. I would like to see Congress increase the gas tax by $1 per gallon, phased in gradually by 10 cents per year over the next decade. Campaign consultants aren't fond of this kind of proposal, but policy wonks keep pushing for it. Here's why:

The environment. The burning of gasoline emits several pollutants. These include carbon dioxide, a cause of global warming. Higher gasoline taxes, perhaps as part of a broader carbon tax, would be the most direct and least invasive policy to address environmental concerns.

Road congestion. Every time I am stuck in traffic, I wish my fellow motorists would drive less, perhaps by living closer to where they work or by taking public transport. A higher gas tax would give all of us the incentive to do just that, reducing congestion on streets and highways.

Regulatory relief. Congress has tried to reduce energy dependence with corporate average fuel economy standards. These CAFE rules are heavy-handed government regulations replete with unintended consequences: They are partly responsible for the growth of SUVs, because light trucks have laxer standards than cars. In addition, by making the car fleet more fuel-efficient, the regulations encourage people to drive more, offsetting some of the conservation benefits and exacerbating road congestion. A higher gas tax would accomplish everything CAFE standards do, but without the adverse side effects.

The budget. Everyone who has studied the numbers knows that the federal budget is on an unsustainable path. When baby-boomers retire and become eligible for Social Security and Medicare, either benefits for the elderly will have to be cut or taxes raised. The most likely political compromise will include some of each. A $1 per gallon hike in gas tax would bring in $100 billion a year in government revenue and make a dent in the looming fiscal gap.

Tax incidence. A basic principle of tax analysis -- taught in most freshman economics courses -- is that the burden of a tax is shared by consumer and producer. In this case, as a higher gas tax discouraged oil consumption, the price of oil would fall in world markets. As a result, the price of gas to consumers would rise by less than the increase in the tax. Some of the tax would in effect be paid by Saudi Arabia and Venezuela.

Economic growth. Public finance experts have long preached that consumption taxes are better than income taxes for long-run economic growth, because income taxes discourage saving and investment. Gas is a component of consumption. An increased reliance on gas taxes over income taxes would make the tax code more favorable to growth. It would also encourage firms to devote more R&D spending to the search for gasoline substitutes.

National security. Alan Greenspan called for higher gas taxes recently. "It's a national security issue," he said. It is hard to judge how much high oil consumption drives U.S. involvement in Middle Eastern politics. But Mr. Greenspan may well be right that the gas tax is an economic policy with positive spillovers to foreign affairs.

Is it conceivable that the policy wonks will ever win the battle with the campaign consultants? I think it is. Even after a $1 hike, the U.S. gas tax would still be less than half the level in, say, Great Britain, which last I checked is still a democracy. But don't expect those vying for office to come around until the American people recognize that while higher gas taxes are unattractive, the alternatives are even worse.

Mr. Mankiw, a professor at Harvard, was chairman of the Council of Economic Advisers from 2003 to 2005.

[Ironic Mustache]

The economy, national security, etc., can lick the underside of my nutsack. I vote that gas prices decrease by ten cents every month for the next two years. Booyah, free gas. Take that, economists!

[f3lix]

I wonder if Greg Mankiw has ever thought about cutting government spending and creating a budget surplus to rid of our debt. It is unlikely since he is just another flaming liberal at the collegiate level of professing.

[DJ FC]

Originally Posted by f3lix

I wonder if Greg Mankiw has ever thought about cutting government spending and creating a budget surplus to rid of our debt. It is unlikely since he is just another flaming liberal at the collegiate level of professing.

You are so wrong you don't even know how wrong you are.

First of all, Mankiw is probably THE MOST respected Republican economist, definitely not a liberal, he was the chief economic advisor to me (George W. Bush).

[f3lix]

Liberals and conserivates are the same thing. Republicrats. Both want to spend more money and take taxes from hard working Americans. If you can refute this statement, I'll be impressed.

[Beebs]

Originally Posted by f3lix

Liberals and conserivates are the same thing. Republicrats. Both want to spend more money and take taxes from hard working Americans. If you can refute this statement, I'll be impressed.

Ok, I'll refute it with the same degree of thought you put into saying it. Go fuck yourself, you're wrong.

[Beebs]

In regards to the original post, I don't think the social cost of people driving is at all as high as it is made out to be in his statement, pollution is overblown and cars continue to get cleaner and cleaner, traffic hardly slows down the economy. So yes, it would cause people to drive less, but I don't think there will be any net social gain, and definatly not enough to cover the deadweight loss from the tax.

[f3lix]

Originally Posted by Beebs

Ok, I'll refute it with the same degree of thought you put into saying it. Go fuck yourself, you're wrong.

I wasn't at all surprised to see this kind of response. I've never met a Dem or Rep that could refute the statement. Voting records support over 99% of the dem/rep candidates to being tax raisers. The less than 1% are the candidates that are crossovers from Fiscally conservative parties, whom all realized the only way for them to get into office is to be labeled as a Dem/Rep, despite carrying the same ideology they had as a third party candidate. Best example is Ron "Dr. No" Paul. If you don't know who he is, then your ingorance in politics demerits any hopes of a non-ignorant political post.

[Beebs]

It's an impossible statement to refute fuckhead, it's asking to determine people's intent, and assuming all members of a group are identical.

"Black people and white people are the same, they just want to keep asian people down, I dare you to disprove this statement"...Same thing.

[DJ FC]

Originally Posted by f3lix

Best example is Ron "Dr. No" Paul. If you don't know who he is, then your ingorance in politics demerits any hopes of a non-ignorant political post.

You didn't know who Gregory Mankiw is, so shut the fuck up.

[DJ FC]

Also, Mankiw isn't a politician per se, he's an economist. A fiscally conservative economist/ professor at Harvard, and way smarter than you. He'd Pwn in fantasy football.

[f3lix]

Originally Posted by f3lix

I wonder if Greg Mankiw has ever thought about cutting government spending and creating a budget surplus to rid of our debt. It is unlikely since he is just another flaming liberal at the collegiate level of professing.

Just like your friends in Washington, you also do not read documents before voting or having diarrhea of the mouth.

Also, I already know it's impossible to refute my comment, because voting records show that nearly every politician fails in their claimed attempts of "no new taxes."

[Beebs]

You wonder if he has ever thought about cutting government spending...you wonder if one of the most respected economists alive has considered cutting government spending, Yea, I imgaine it has crossed his mind a time or two. Do you realize just how stupid you are? If you have ever taken an economics class outside of high school, which I have my doubts about, you have more than likely read (or failed to read in your case) either a textbook by Mankiw or at least a handout.

You bring the level of any discussion down to the level of a goddamned three year old, or worse, a 40 year old white bread soccer mom.

Impossible to refute does not equal true, it is impossible to refute that god is talking to me at this moment telling me thousands of creative ways to kill you, but that does not make it true. You have still yet to refute my claim that all whites and blacks are the same and they just want to keep the asians down. Your response to a thread about the merits of raising one particular tax is that all politicians are evil and have some sort of hidden agenda to steal from the poor innocent hard working citizens.

They get elected to run the government, running the government takes money, the goverment gets money through taxes.

You sure can bring the fucking stupid to any conversation.

[Jake]

Just thought I’d add my two cents.

I’m a senior studying urban planning at BSU and I’m minoring economics. I have to say I mostly agree with George W. on this one. For anyone who has studied economics they should know that this is a classic case of trying to internalize an externality. Alright then, for those of us who haven’t studied economics what exactly is an externality? Well, an externality is a form of market failure and inefficiency that occurs whenever someone does not pay the full costs or receive the full benefits of a transaction. So what then are the externalities that result from cars? Well there are 2 primary externalities: pollution and congestion. When a car pollutes the air, its driver does not pay for his action of polluting. As a result, the rest of us in society bear the costs of the driver’s action through increased medical costs, less blue skies/ sunny days, global warming etc, regardless of whether we drive. Second, when too many vehicles drive on a highway each vehicle imposes a cost on every other vehicle in the form of lost time. Beebs stated that she believed congestion and pollution to be negligible however, I would disagree with this argument depending on the location. In places like Los Angeles air pollution and traffic congestion are significant, trust me I lived there last summer. I have seen reports that estimate these costs to be in the hundred billions for LA resulting from pollution and congestion. I realize however that these problems are less acute in rural Indiana, though even this is changing.

So the question then is what do we do as a result of these externalities? Well economists since the 1920’s have agreed that government intervention into the market as a result of externalities is necessary. Now this doesn’t necessarily just mean soviet (liberal) styled command and control government intervention from the 1950’s…. no no no…..Today’s economists like to use government intervention through the use of market based solution. There are two well-respected forms of internalizing externalities that economists like. The first is the privatization of the afflicted resource (air and roads). However, this represents a real problem in this case because well…. how do you sell off the sky, and second selling off roads leads to monopoly power which represents another form of market failure. The second and better option then is what is called a Pigouvian tax. A Pigouvian tax is when a government enacts a tax on the person generating an externality that is equal to the cost he/she imposes on society. This has many effects. It gives people who generate these externalities incentive to do drive less, find ways to reduce their externalities and compensates society so that they can A: clean the air, or B: invest in greater road capacity or mass transit.

Alright then, so all of this points to what “W” is talking about in raising the national gas tax right? Well, partially but not exactly, there are two problems. First, the issue that Beeb’s raised, that these problems might vary by location. Since these problems vary by location it is logical that LA might need a $3 tax while rural Indiana only needs a .20 cent tax. Therefore, instead of setting a national gas tax what we really need is a localized gas tax that varies as the externalities vary in intensity. But some of you might say HA GOOD LUCK none of these local places are willing going to impose a tax on themselves so how the hell are you going to get them to? Well then what we need then is federal prodding to force localities to set up these local taxes and tie it to transportation funding. Those communities that enact there local gas tax and have hard evidence that there tax level equals the cost of the externality receive transportation funding while those communities that do not risk losing transportation funding. This is a common practice with regard to air quality and seems to work well. The second and final problem is the political problem expressed by f3lix, which sparked my interest in writing this response. PEOPLE DON’T LIKE NEW TAXES!!!! Alright then your right no new taxes!! So then make the tax neutral! A neutral tax is when you raise the taxes in one area but you reduce taxes in others. Therefore, raise the gas tax but offset this by reducing income taxes or property taxes. Therefore peoples tax bill remains the same but at the same time they also are forced to realize the true costs of using an automobile.

This is no longer about conservative or liberal. This is about educated versus non-educated! I get tired of everyone’s ideologies (on both sides of the spectrum) getting in the way of progress. People need to put their stupid ass dogma’s aside and start using their brains or at least try to consider something new. In conclusion, if you always do what you’ve always done, you’ll always get what you’ve always got!!

Phewww… that was a lot of writing! Thanks to those who actually read it! Definitely, my longest post on Nubblies yet, but hey I’m on fall break, had nothing better to do, and care greatly about topics such as these regarding urbanism.

[Ironic Mustache]

That was more like 43 cents.

[DJ FC]

Best post ever.

[f3lix]

Good post, Jake. I support the idea of reducing or cutting other taxes to make way for something like this. Sadly, the realistic pessimist inside me already has seen nearly every tax invented (whether temporary or permanent) never gets removed or repealed. Beebs, for a local argument, just look at all the 1% increases Indiana has used for temporary reasons (most for funding of sports facilities) and then decided "HEY! We could just keep this tax and use it for other things." This is why I'm ALWAYS against new taxes... they never go away.

[Jake]

Very good comment f3lix and I also share your concerns about taxes not being repealed after the problem is alleviated but there are also ways to deal with this problem which I wish to address. First, in all honesty I would not try to deal with the problem of congestion through the use of a gas tax. I would only use the gas tax to deal with air pollution... here’s why. Air pollution is a regional problem, which can be dealt with in the ways I discussed in my previous post. However, congestion is something that is very localized. It is possible in a single community or even neighborhood to have on street that is heavily congested and another, which is virtually empty. Therefore, it is unfair to bundle in the costs of congestion into a gas tax (which everyone who drives must pay) because not everyone contributes to congestion equally. Only those who use the congested streets contribute to congestion and should be required to compensate. To this end there are several new ways to deal with congestion other than an unfair gas tax to solve congestion, which may also allay your fears of the tax never being repealed. The main idea is the use of a congestion charge or congestion toll, which have successfully been implemented in London, Stockholm, Singapore, and parts of Southern California. Congestion tolls work like this….. The government sets a standard for a street or highway… say 45 mph. As more and more cars load onto the road contributing to congestion and slowing down traffic the toll to use the road increases. This provides incentives for drivers not to use congested roads during peak periods and also provides the government with revenue to invest in new capacity. However, this brings us back to the place we were before of having a tax. So how does this system self regulate itself so that as the problem is alleviated so to is the tax. Well as the number of drivers decreases as a result of the increased toll or from increased capacity and the speed of traffic raises back to 45 mph or above the toll decreases. If traffic speed exceeds 45 mph its possible that the toll may even drop to 0! This is a great system because the price varies as the problem varies. Most of the existing systems have prices that are updated by the minute and use electronic devices to collect the fees from drivers so that you don’t have to slow down to a toll plaza and get out your change!!! So this system is self-correcting and doesn’t require much political oversight, which is nice.

However, that still leaves us with the problem of the gas tax used for air pollution after the problem has been solved. For this I can only rely on the promise of democracy. This is sometimes the greatness of the two party system and well to be honest fiscally responsible republicans. I know for a fact those pesky republicans and libertarians, whether I agree with them or not, are always looking for ways to cut taxes, which in all honesty is probably good for all of us. The great thing about democracy is that however imperfect it may be it does represent some sort of choice and competition! Ps.. last time I checked I remember George W pushing through a whole series of large tax cuts. Therefore, however imperfect America may be there is always hope my pessimistic friend.

For myself I try to avoid identifying with either of the 2 major parities. I believe both parties can do great good and harm depending on the situation and context of their actions. Obviously democrats and government intervention is more necessary in large cities where people’s actions greatly impact one another and market failures are all abound. And vice versa for republicans and small town America. Plus I very much believe there are great conservatives and great liberals, and horrible conservatives and horrible liberals. I just get tired when either party’s dogma gets in the way. Conservatives tend to naively believe the market to be perfect and liberals tend to believe the market to be an evil device, which perpetuates injustice. I however believe both have good things to say at times so long as we listen reason and not ideology. Final thought….. Revolutions start with an idea and end when the only idea left is clinging to power. Some words of wisdom for both parties.