The Best Gas Tax Is Free

The Financial Times has an interesting op-ed today arguing for a gas tax in the U.S. It presents a plan by two law professors -- Michael Levine from New York University and Mark Roe from Harvard -- who believe they've figured out a solution to making a gas tax work. The key to public acceptance, according to them, is a tax rebate to offset the tax. I hardly know where to begin.

Before getting started, I just wanted to point out that the Financial Times uses "petrol" in place of "gas," the common term on this side of the pond for what we put in our cars to make them go.

They begin by explaining why it won't currently work, with four basic groups objecting:

The average consumer hates it. It is too painful to see those numbers on the pump every time you fill up. Politicians fear that if they were seen to raise petrol prices by a tax of a dollar or two, voters would not forgive them.

True. People hate taxes. They intend to solve this, so stay tuned.

The second big strike against a tax is that heavy users of petrol, including people who live in the west, have powerful lobbying groups or senators who would derail it in Congress.

People in the west? They're the ones who are most opposed to a gas tax? Huh? I think SUVs are pretty big in the South and Midwest too. Come to think of it, I see plenty in the Northeast to cope with those rough, snowy winters. Virtually everyone who doesn't take public transportation everywhere, which is the vast, vast majority of the country, would be affected. This group puzzles me, because I don't see how it's very different from the first.

The auto industry makes more money selling gas guzzlers than small cars - so count on senators from car-producing states to oppose a tax.

One problem with this. The U.S. government now has very, very strong influence over two-thirds of the U.S. auto industry. I highly doubt that their lobbyists fighting for SUVs would matter much these days.

The energy industry makes its money by selling energy - so senators from energy-producing states would oppose it too.

Sure. Point taken. And this one isn't solved by their plan. Speaking of that plan, here comes the fun:

Here is how it would work: Suppose you are the average driver, driving 12,000 miles a year in a 15 miles-per-gallon car. A $2 per gallon tax would cost you $1,600 a year. You would be unhappy about that. Sure, you would drive less if taxed and next time you would buy a car with better petrol mileage. But you would be so annoyed at the tax that you would not forgive your congressman for voting for it. But if you got a $1,600 cheque or a visible rebate on your taxes, you would understand that you were even: you might even think that with a little life adjustment, you could beat the game and come out ahead.

So what you're telling me is that you're paying people to drive less? Let me draw an amusing analogy. Imagine you wanted to tax cigarettes higher, but were worried how smokers would react. You assume all of them smoke a pack a day, which amounts to 365 packs per year. So if you raise the tax on that by $2 a pack, and give them a rebate for $730, would that make them smoke less?

This idea seems a little bit out there, for smokers or drivers. I guess the idea that the government would be paying its citizens to not do something just seems a little too hard to swallow.

But even if you can get past that, could it work? Maybe, but I'm skeptical. I don't think the average American does a whole lot of joy riding these days. Most drive when they have to: to work, to the grocery store, to get their kids from school, etc. I guess they could try carpooling more. But wait a second: right now, Americans already save more if they carpool -- then they don't have to pay for gas in the first place. Yet, they generally choose to let convenience override the cost savings that might come from driving less.

Since Americans would be getting the tax rebate anyway, their situation would remain unchanged. Any cost savings incurred from not driving after the tax would also have been a cost savings that they would have incurred before. Now that savings is greater, but they didn't care about it then, why would they care about it now? I just think people care more about convenience.

Also, just to note, their solution doesn't help the objection of the energy lobby. Their plan still attempts to incentivize drivers to consume less energy. Clearly, oil companies would not be amused.

But even if you think their idea would cause people to drive less, there are the logistics.

They can be bought: the rebate concept could be extended to each identifiable, definable veto group. Let us say that taxi drivers drive 50,000 miles per year in 15 mpg cars. A little arithmetic has a $2 per gallon tax costing them $6,667; for truckers it works out at $32,500. That would be their rebate. Taxi drivers would have an incentive to use less petrol, for example by using hybrid cars. The California Air Resources Board has estimated that truckers could burn 7 per cent less fuel just by installing aerodynamic fairings. Payback would be quick. Politicians might even grease the wheels a little by giving them a bit more.

How in the world do you possibly place all drivers accurately into a group that matches the mileage they incur over a year? This seems like it would continue to complicate an already overcomplicated tax code.

What if there are few commuters in my neighborhood, but I commute quite far by car each day to work. Too bad for me. What if you live in a neighborhood of heavy car commuters, but you work from home. Good for you. Sounds like some arbitrary wealth redistribution to me. But I guess you could self-report mileage. I can already envision the tax auditors looking at odometers.

This idea has some significant inherent and logistical problems that make it hard for me to take seriously.