It is time for our entire political and pundit class to get on the bandwagon to raise gasoline and diesel taxes by the arbitrary amount of $1 per gallon at the Federal level. So instead of collecting a mere 18.4 cents per gallon on the 130 billion gallons plus of gasoline used in the United States, and 24.4 cents per gallon on the 40 billion gallons of diesel consumed in our nation, this proposal would add roughly $170 billion in additional Federal government revenues. Why do it now? Because the price of oil, and therefore gasoline and diesel, is at a twelve year low. Because all of us are on the hook directly or indirectly for the negative climate changing effects of the burning of these two fuels. Because these new revenues could be used to rebuild and improve America’s highway and public transportation infrastructure, thereby — increasing the demand for skilled work throughout the country and increasing economic activity, decreasing the economic and personal costs of our failing infrastructure, deterring the public's renewed desire for gas guzzling vehicles (and thereby buttressing the increased efficiencies President Obama wrung out of the car companies as part of the rescue of the auto industry), and asserting the leverage the United States has over oil producers both at home and abroad (which is quite relevant in light of the treasure and lives this country has spent protecting the interests of oil producers and the oil industry writ large).
A major point of this tax is that we cannot count on marginal increases in consumer spending to repower our economy beyond the weak but sustained recovery we have enjoyed since the nadir of the Bush II presidency. Prices at the pump are way low but we do not have evidence that consumers are spending the money they are “saving" on more consumer goods, particularly over the past holiday season. In any case the accelerators of consumer spending to spur economic growth don’t seem to be working all that well - or maybe they are working as well as they ever did but with the decline of public sector investment in the economy in the past 20 plus years maybe consumer spending is just not enough to spur the economy. And it appears that business spending is pretty tepid too - and in fact spending in the energy sector is collapsing because of low energy prices. All the more reason for government spending to become a driver once again in the domestic economy.
One of the most puzzling responses to 9/11 was the failure to take action to create redundancy in our nation’s transportation network. With planes out of the sky for a week, private vehicles were about the only way to travel with exception of the not-world-class Amtrak rail network in the Northeast. Where was the push for investment in rail and other forms of public transportation once it was clear that air transportation was totally vulnerable to a couple of instances of terrorism? In Europe, Japan and China people have the option of planes, trains, buses and automobiles. In the United States where we have overindulged in the auto sector, our highways are decidedly more decrepit than those in other “developed” countries — maybe because they are older, certainly because the selfishness of the Republican agenda has caused us to eat our seed corn and not reinvest in the commons that are the basis of our collective prosperity. But why not have a national railroad network to match our very impressive national freight rail network? Why not figure out a way of creating a country wide and effective system of intercity busses, as well as more frequent and more reliable inner city and intra regional transportation?
So invest away in transportation but also acknowledge that all Americans have invested treasure and blood to protect , sustain and subsidize the oil industry. That means thinking about using these revenues to rebuild other infrastructure — the delivery of potable water to all American homes, the rebuilding of sewers and sewage treatment plants which can be marginal drivers of the new economy of reuse and conservation, the reshaping of the electrical grid to encourage production and efficient use of renewables and a host of other investments that will improve the lives of most Americans.
And to the argument that this is a regressive tax on the poor (and on agriculture, and on truckers, and on rural people), the response is not to pick and choose people whose energy use should be subsidized. But rather to support a robust earned income tax credit that takes away the need to subsidize special interests even they are allegedly the “deserving poor." No one should be above being incentivized to using fossil fuel products more efficiently or with greater care.
The cost of this tax, in accord with the laws of supply and demand, will fall largely on the producers of oil. If the tax helps suppress demand (and therefore the projected tax revenues are less than forecast — hooray!) then the price suppliers can charge will in turn be depressed.
A tax is direct. A tax is effective. A tax may create distortions but those distortions can me measured and addressed. Free market economists who have held sway among Republicans and Third Way Democrats have argued for years that direct government action in the economy - like taxes and spending — is bad. Instead "markets" needed to be created to allocate goods "efficiently" and without "distortion." So markets were created for electricity distribution and markets were created for carbon credits. So the government could wage economic policy and deal with market failure by creating “markets” that the private sector would run to achieve societal goals efficiently. But what the economists did not say or imagine (maybe?) is that markets can be gamed, and markets whose mechanisms are overseen by toothless regulators are a temptation for unethical money and interests. So Enron “traders” created market disruptions in the California power market that not only generated unfair profits but led to blackouts which were an important factor in the impeachment of Gray Davis. In the case of carbon credits in Europe, the political requirements of keeping industry happy led to too many credits issued thus creating much of nothing in terms of incentivizing efficiency and reduction of carbon. Of course this is the Europe of effective regulation of American new businesses (like Google) but not so much of their own industrial juggernauts (VW for example)). The creation of artificial markets benefits market players in a way that is obscured from view. A tax is a tax, which is of course why politicians run from taxes all the time.
With oil prices down, this is the least risky time to raise taxes on gasoline and diesel. And an election year where global warming should be the central issue, is a time to explain why.