In a post yesterday, Jamie Metzl proposed several useful ideas for promoting energy security.  Today I’d like to present an alternative idea that I think can and should gain bipartisan support – a gas tax refund.  Many others have proposed this idea, but I’ve been surprised that it has gained so little attention by our lawmakers.  The basic idea goes something like this.  Right now our country is overreliant on oil.  I say overreliant because our consumption of oil provides revenue to regimes that wish us harm and it forces our military to be involved in highly unstable areas.  Burning oil also releases greenhouse gases that lead to environmental degradation and global warming.  Most of the oil in the US is consumed in the form of vehice fuel.  So, it makes sense that we should figure out ways to decrease our consumption of oil based fuels.  There are plenty of alternatives fuels and technology solutions out there – corn based ethanol, cellulosic ethanol, hybrid vehicles, lightweight materials, etc.  The problem is that these alternatives are relatively expensive compared to oil based fuel or have other downsides which makes them less attractive than cheap gasoline.  Granted, the price of gasoline has risen recently, which has started to encourage the adoption of these alternatives.  However, even these higher prices still fail to reflect the overall cost of our fuel consumption. 

Any economist will tell you that the most efficient way to solve this problem is to tax fuel.  Any politician will tell you that such a solution is political suicide.  In the past politicians have responded to fuel crises with regulation.  They created CAFE standards which forced automakers to produce fuel efficient vehicles that people really didn’t want since gas was still cheap.  Presently politicians have presented a host of new proposals focused on the promotion of new technology.  Politicians love technological solutions to problems because they seem to not cause any pain.  And if they are successful, we all benefit.  The problem is that government is generally pretty bad at picking technology winners.  The market does a much better job. 

So, what I’d like to highlight a proposal that a few others have already made - a gradual decrease in the payroll tax over the next 10 years.  This would be matched by an equivalent gradual increase in the gasoline tax over that same time period.  This would be revenue neutral.  No money from the gasoline tax would go to promote alternative energy programs.  It would go right back into the pockets of Americans.  The average American at the end of the day would have the same money in his/her pocket.  For those Americans who don’t pay payroll taxes, there could be an additional cash transfer in the form of increased social security payments.  Because businesses also consume oil, their business taxes could also be reduced.  The important thing is to ensure that the reduction in taxes is not correllated with individual oil consumption. 

This proposal has the potential to decrease oil consumption because it becomes relatively more expensive for consumers than other alternatives.  It would also jumpstart the commercialization of alternative fuels and technologies that are now not competitive with gasoline.  It would require no additional government expenditure.  Conservatives would be happy with the reliance on the private market to solve the problem, the fact that the proposal is revenue neutral, and the fact that the average person would not be paying any additional taxes.  Conservatives would also support a reduction in the payroll tax because they argue that such a tax reduces the incentive to work.  Liberals would be happy because oil consumption that harms the environment would be reduced.  Also, the regressive payroll tax which has a greater effect on the lower classes would be reduced.  Both liberals and conservatives would be happy by our decreased financial support of unfriendly regimes. 

So, who are the potential losers?  Well, for one, US car companies in the short run are potential losers.  But, if the gasoline tax is instituted in a gradual predictable manner that allows them to revamp their fleets, this damage could be minimized.  Also, those consumers who drive a lot – particularly those in rural areas would be harmed more than those who are in urban areas.  However, the new technologies that would come to the market would also have a greater benefit for these consumers who drive more. 

It seems to me that this is both politically viable and economically efficient and sensible.  It’s very rare that those two factors match up.  It seems, however, that politicians are still afraid to explore this solution.  They continue to propose subsidies and tax breaks for alternative fuels and technologies and money for further government research.  These solutions may eventually make a dent in the problem, but harnessing the power of corporate America would be a much quicker and more effective solution to the problem. 

For more information on this idea, I think that Robert Frank has done an excellent job of describing it in two New York Times op-eds:

http://www.demos.org/pub802.cfm

http://www.demos.org/pub925.cfm

Related posts:

1. The Prospects for the Oil Spill and Deficit Commissions
2. Reconceiving the BP Debacle
3. Dubious Decisions on Drilling: Why Obama Should Reconsider Offshore Drilling in the Wake of the Deepwater Horizon Oil Spill
4. Bipartisan gift to the planet
5. Moscow’s Annual Energy Row: ‘Kto Kogo’?