The 50¢-a-Gallon Solution

Gregg Easterbrook
Gregg Easterbrook Contributing Editor, The Atlantic, Visiting Fellow (2000-08), Brookings Institution, Author, Arrow of History (forthcoming, 2018)

May 25, 2004

Republican strategists have been making hay of Senator John Kerry’s support a decade ago of a 50-cent-per-gallon increase in the federal gasoline tax. History let Mr. Kerry off the hook: the proposal never advanced in Congress, so he never cast a vote for it.

Few politicians, especially those with presidential ambitions, would entertain such a big jump in the federal gasoline tax today. With the price of gasoline reaching more than $2 a gallon at the pumps this month, Senator Kerry has argued for oil to be diverted from the nation’s Strategic Petroleum Reserve, a plan President Bush has rejected in pursuit of his energy bill.

But the country would indeed be better off if gasoline taxes had been raised by 50 cents a gallon when Mr. Kerry favored the idea. And the United States would still be wise today, if it increased gasoline taxes by the same amount now.

The federal gasoline tax is 18.4 cents per gallon, while state gasoline taxes average 24.6 cents per gallon. Had federal gas taxes gone up 50 cents a gallon 10 years ago, several things might not have happened or would have had far less impact.

The S.U.V. and pickup-truck crazes would not have occurred, or at least these vehicles would be much less popular; highway deaths would have been fewer; and gasoline demands would be lower as would oil imports. To continue, the world price of oil would have been lower, since petroleum demand in the United States is the first factor in oil markets; greenhouse-gas emissions in this country would be lower; Persian Gulf oil states would have less influence on the global economy and less significance to American foreign policy; fewer dollars would have flowed to the oil sheiks; and the trade deficit balance for the United States would be smaller.

Don’t all those things sound pretty good? And if higher gasoline taxes had moderated the ever-growing national thirst for oil, fuel at the pump still would have become more expensive — but Americans would be sending the extra money to Washington rather than Riyadh.

Of course, Americans don’t want to send extra money to Washington. But new gasoline taxes could be revenue-neutral — intended to discourage oil waste rather than fill government coffers, with other taxes cut as the pump tax rises. Ideally, proceeds from a revenue-neutral gasoline tax could be used to reduce income taxes and payroll taxes of the poor and lower middle class. Gasoline prices affect this group regressively.

Most economists would say that higher pump prices are a better counterforce to rising oil consumption than complex regulatory schemes. (When prices rise, consumers make their decisions on how to respond, usually preferred over government-imposed solutions.) Three decades ago, the United States used about 15 million barrels of oil a day; now it’s 20 million barrels and rising. About 10 million barrels a day are imported now, compared with about 4 million barrels 20 years ago.

One downside would be lower profits for the Big Three in Detroit, which are S.U.V.-dependent. Any new gas tax would need to be phased in over a period of years, giving Detroit time to adjust. General Motors, Ford and Daimler Chrysler all sell high-quality cars with a higher mile-per-gallon performance at a profit in Europe. They can do so here, too.

When the Bush campaign broadcast an ad highlighting Mr. Kerry’s 1994 gas tax position, the Kerry campaign was quick to point out that one of those who had promoted the idea of a higher gasoline tax, offset by reductions in other taxes, was N. Gregory Mankiw, now chairman of President Bush’s Council of Economic Advisers. In 1999, Mr. Mankiw proposed that the federal gasoline tax be increased by 50 cents per gallon, with income taxes reduced an equivalent amount. “Cutting income taxes while increasing gasoline taxes would lead to more rapid economic growth, less traffic congestion, safer roads, and reduced risk of global warming,” Mr. Mankiw wrote.

This was a good idea when John Kerry spoke of it a decade ago; it was a good idea when Mr. Mankiw proposed it five years ago; it remains a good idea now.