Tuesday, January 13, 2009

Increase the Fuel Tax

There's no doubt about it. We decide on a day to day basis what is best for us. When things we want are less expensive, we buy or use more of them. When things get more expensive, we use less of them and switch our preferences to good things that are relatively cheaper. This concept is called "marginal utility", if my memory of economics is correct.

Gasoline is now much cheaper than it was six months ago. Six months ago we rationed our travel, stepped lightly on the gas pedal, and dreamed of owning a Prius (but nobody had any to sell). Now, Toyota dealers have 56 days of supply and we hop in the car at the slightest provocation.

Six months ago everyone was talking about alternative energy, and investments in it were booming. Now, there's a big question regarding whether alternative energy can be cost-competitive with oil. Windmill farms and solar arrays may be planned, but will they be built? Not as long as oil is cheaper than their output.

So, we need to change the cost equasion so that that the price of oil doesn't go through the roof again. The way to do that is to replace the need for energy from oil by producing energy from alternative sources. But how will the investment in alternative energy be funded if private investment dries up? A fuel tax increase makes the most sense, say many economists. I agree.

We should start by raising the federal tax on motor fuels by $.50 per gallon, with the revenue going into construction of proven alternative energy sources and utilities such as solar arrays, windmill farms, and transmission lines. The government would own the constructed items and bid out their operation to private companies. When the price of oil rises (and it will), to the point where these items have a value greater than their cost, the government should put them up for bid and sell them.

This rather painful tax would have several positive effects. First, it would reduce current consumption, thereby tending to keep the price of oil lower than it would have been and reducing carbon emissions. Second, it would enable construction of alternative sources at a time when the economy needs to generate jobs. Third, when the new sources came on line, they would put downward pressure on the price of oil. Fourth, the alternative energy would provide some additional security when oil prices rise significantly or oil supplies are threatened. Lastly, these sources would provide new clean electrical power to fuel the new generation of plug-in hybrid vehicles.

If an additional fuel tax is proposed, be "selfish" - support it! It's one more step toward energy independence and a stick in the eye of global warming.


Emily said...

if i weren't already married, i would be in love with you.

Woozie said...

Well I don't have anything else to say.

I'm not/wouldn't be in love with you but you're still a pretty okay guy :)

ThomasLB said...

Ross Perot proposed that several years ago.

He actually had some pretty good ideas- then he popped up with "The Black Panthers tried to kill me and I drove them off with my six-shooter! The Cubans tried to kill me to! And the Republicans are trying to blackmail me!" and it was hard to ever take him seriously after that.

But back to the fuel tax, I'd be for that. I'd also tack on an extra surcharge on new vehicles that get less than 30 MPG.

Ron Davison said...

I like it. I've wondered if we could have a floating tax. When the price of gas is high, this tax would be low; when it is low, the tax would be high. Maybe peg gas prices at $4 a gallon or something.
This would change behavior. It would also mean that we have public monies for alternative energy or transportation when prices are low and private monies for alternative energy or transportation when prices were high. (When gas is $4 a gallon, there are more favorable alternatives than when it is $2.)

Dave said...

The one flaw I see is that this is a regressive (?) tax - it hits those that can least afford it more than it hits the well to do and rich - that old marginal utility thing.

Lifehiker said...

Dave, I agree that a fuel tax would hit the poor harder than the rich. However, these days the less well off pay only sales tax and employee FICA, along with fees like "tags". When it comes to income taxes, they often get a check instead of a bill.

Yet, at the same time, I think I've seen lots of less well off people buying pickup trucks whether they needed them or not. It's been a status symbol. Got to change that...and low priced gas is not the way to do it. I'd rather increase the earned income credit (bigger check, that is).