Fuelishness! -- The FuelClinic.com Blog

Krauthammer’s “Net-Zero” Gas Tax

January 10, 2009 · · Filed Under Congress, FuelClinic, Fuelishness!, Tax Credits 

This week Charles Krauthammer wrote in The Weekly Standard about a novel new kind of gas tax – a “net-zero” tax. In an effort to keep raw oil prices low, encourage improved fuel conservation, and shore-up alternative energy investment and development,  Mr. Krauthammer suggests we take the current low oil prices as an opportunity to impose a new gas tax.

High gas prices, whether achieved by market forces or by government imposition, encourage fuel economy. In the short term, they simply reduce the amount of driving. In the longer term, they lead to the increased (voluntary) shift to more fuel-efficient cars. They render redundant and unnecessary the absurd CAFE standards–the ever-changing Corporate Average Fuel Economy regulations that mandate the fuel efficiency of various car and truck fleets–which introduce terrible distortions into the market. As the consumer market adjusts itself to more fuel-efficient autos, the green car culture of the future that environmentalists are attempting to impose by decree begins to shape itself unmandated. This shift has the collateral environmental effect of reducing pollution and CO2 emissions, an important benefit for those who believe in man-made global warming and a painless bonus for agnostics (like me) who nonetheless believe that the endless pumping of CO2 into the atmosphere cannot be a good thing. 

But how exactly do you convince American’s to accept this new tax – especially now as so many still struggle with job losses, mortgage payments, and a skidding stock market? How about establishing a tax-refund proportional to the amount of tax paid at the gas pump.

The rub, of course, is that this price drop is happening at a time of severe recession. Not only would the cash-strapped consumer rebel against a gas tax. The economic pitfalls would be enormous. At a time when overall consumer demand is shrinking, any tax would further drain the economy of disposable income, decreasing purchasing power just when consumer spending needs to be supported.

What to do? Something radically new. A net-zero gas tax. Not a freestanding gas tax but a swap that couples the tax with an equal payroll tax reduction. A two-part solution that yields the government no net increase in revenue and, more importantly–that is why this proposal is different from others–immediately renders the average gasoline consumer financially whole.

Here is how it works. The simultaneous enactment of two measures: A $1 increase in the federal gasoline tax–together with an immediate $14 a week reduction of the FICA tax. Indeed, that reduction in payroll tax should go into effect the preceding week, so that the upside of the swap (the cash from the payroll tax rebate) is in hand even before the downside (the tax) kicks in.

The math is simple. The average American buys roughly 14 gallons of gasoline a week. The $1 gas tax takes $14 out of his pocket. The reduction in payroll tax puts it right back. The average driver comes out even, and the government makes nothing on the transaction. (There are, of course, more drivers than workers–203 million vs. 163 million. The 10 million unemployed would receive the extra $14 in their unemployment insurance checks. And the elderly who drive–there are 30 million licensed drivers over 65–would receive it with their Social Security payments.)

Essentially it’s a redistribution of tax, from paychecks to gas pumps, giving a real incentive to conserve fuel while keeping the price of crude oil in check – since a hike in crude prices would cause too much pain at the pump, and cut demand like we’ve seen over the past few months.

I am concerned with the mechanics of administering such a tax for those in the “exceptional” areas – I disagree that an average of 14 gallons week is even close to fair, judging from a cusory look thru some of the aggregate data here at FuelClinic. Perhaps we’d build a system like FuelClinic – which tracks actual fuel usage – but in a more verifiable way (this site is basically using the honor system, you can add to it whatever you want, but you’re only hurting your own statistics, not stealing any money from the government.)

So… would you support a gas-tax if it was coupled to a tax credit or some sort?


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