WASHINGTON – For 32 years I’ve been advocating a major tax on petroleum. I’ve got as much chance this time around as did Don Quixote with windmills. But I shall tilt my lance once more.
The only time you can even think of proposing a gas tax increase is when oil prices are at rock bottom. When I last suggested the idea six years ago, oil was selling at $40 a barrel. It eventually rose back to $110. It’s now around $48. Correspondingly, the price at the pump has fallen in the last three months by more than a dollar to about $2.20 per gallon.
As a result, some in Congress are talking about a 10- or 20-cent hike in the federal tax to use for infrastructure spending. Right idea, wrong policy. The hike should not be 10 cents but $1. And the proceeds should not be spent by, or even entrusted to, the government. They should be immediately and entirely returned to the consumer by means of a cut in the Social Security tax.
The average American buys about 12 gallons of gas a week. Washington would be soaking him for $12 in extra taxes. Washington should therefore simultaneously reduce everyone’s FICA tax by $12 a week. Thus the average driver is left harmless. He receives a $12 per week FICA bonus that he can spend on gasoline if he wants – or anything else. If he chooses to drive less, it puts money in his pocket. (The unemployed would have the $12 added to their unemployment insurance; the elderly, added to their Social Security check.)
The point of the $1 gas tax increase is not to feed the maw of a government raking in $3 trillion a year. The point is exclusively to alter incentives – to reduce the disincentive for work (the Social Security tax) and to increase the disincentive to consume gasoline.
It’s win-win. Employment taxes are a drag on job creation. Reducing them not only promotes growth but advances fairness, FICA being a regressive tax that hits the middle and working classes far more than the rich.
As for oil, we remain the world champion consumer. We burn more than 20 percent of global output, almost twice as much as the next nearest gas guzzler, China.
A $1 gas tax increase would constrain oil consumption in two ways. In the short run, by curbing driving. In the long run, by altering car-buying habits. A return to gas-guzzling land yachts occurs every time gasoline prices plunge. A high gas tax encourages demand for more fuel-efficient vehicles. Constrained U.S. consumption – combined with already huge increases in U.S. production – would continue to apply enormous downward pressure on oil prices.
A tax is the best way to improve fuel efficiency. Today we do it through rigid regulations, the so-called CAFE standards imposed on carmakers. They are forced to manufacture acres of unsellable cars in order to meet an arbitrary, bureaucratic “fleet” gas-consumption average.
This is nuts. If you simply set a higher price point for gasoline, buyers will do the sorting on their own, choosing fuel efficiency just as they do when the world price is high. The beauty of the tax – as a substitute for a high world price – is that the incentive for fuel efficiency remains, but the extra money collected at the pump goes right back into the U.S. economy (and to the citizenry through the revenue-neutral FICA rebate) instead of being shipped overseas to Russia, Venezuela, Iran and other unsavories.
Which is a geopolitical coup. Cheap oil is the most effective and efficient instrument known to man for weakening these oil-dependent miscreants.
And finally, lower consumption reduces pollution and greenhouse gases. The reduction of traditional pollutants, though relatively minor, is an undeniable gain. And even for global warming skeptics, there’s no reason not to welcome a benign measure that induces prudential reductions in CO2 emissions.
The unexpected and unpredicted collapse of oil prices gives us a unique opportunity to maintain our good luck through a simple, revenue-neutral measure to help prevent the perennial price spikes that follow the fool’s paradise of ultra-cheap oil.
We’ve blown this chance at least three times since the 1980s. As former French Foreign Minister Jean Francois-Poncet said a quarter-century ago, “It’s hard to take seriously that a nation has deep problems if they can be fixed with a 50-cent-a-gallon” – 90 cents in today’s money – “gasoline tax.” Let’s not blow it again.
Charles Krauthammer’s email address is email@example.com.