Gas Tax

After the election, I suggested that the Obama Administration move forward with a green tax swap -- higher taxes on fossil fuels, coupled with lower payroll taxes in a revenue neutral way.  Lately, I have been thinking of another pairing of carbon taxes, this time with grants back to states.  Here's an outline:

The knock on carbon taxes is that they affect heavy users more than light users of fuel.  That's unavoidable -- that's how the taxes curb the usage -- but there are ways to vary the intensity with which this happens.  Suppose that the federal government made an estimate of all the fossil fuels that were used in each state in a base period, like the two years from 2007-2008.  The federal government could then rebate the tax revenues to each state in proportion to its base-period usage.  States that made reductions in usage relative to the base period would receive a net gain from the tax.  The estimates might be done on a per capita basis, to account for changes in population over time.

Continuing a series that began last week with health care reform, I suggest that another high priority for the Obama Administration is what is known as the Green Tax Swap -- an increase in the gas tax combined with a reduction in the payroll tax rate that fully offsets the revenue increase.  (By gas, I mean all fossil fuels used for any purpose, but others might restrict what is taxed only to gasoline.)  What is the rationale for this?

I was on NPR's Marketplace this evening with a commentary titled, "We need a carbon tax on gasoline."  Here's the teaser:

Can you put a price on pollution? That's the question Congress takes up this week as they begin debate on the Climate Security Act of 2008. The legislation would enact a cap-and-trade system, whereby large polluters would buy and sell emission permits.

Commentator and economist Andrew Samwick has taken a look at his carbon output and his family's. He says if we're serious about cleaning up our act, we should consider a straight tax on carbon.

In a nutshell, while it is true that the largest part of our emissions come from automobiles, plenty still come from heating our homes and traveling by air.  The more emission reduction we can get at the thermostat and in the air, the less we need to squeeze out of automobiles.

Enjoy!

On April 15th, Senator John McCain (R-AZ) called for a federal gas tax holiday from Memorial Day to Labor Day to give consumers "an immediate economic stimulus."  Would it?  No, it wouldn't. 

Over that three month period, consumers would see 18.4¢/gallon less federal tax at the pump, but what would happen to the underlying price of gasoline?  It depends upon whether gas stations can supply more gasoline.  Refiners operate at peak capacity over the summer driving season.  If they can't produce any more gasoline in that three month period, then oil companies and gas stations will raise gasoline prices by 18.4¢/gallon to sell the same amount of gasoline as they did before.  All that will have been accomplished will be to transfer the $9 b. cost of this temporary gas tax holiday from the federal government to the oil companies.