Over at Postcards a few days ago, he blogged a bit about Charles Krauthammer's idea in the latest Weekly Standard called a "Net Zero" gas tax.
This is an interesting idea. Essentially, the tax would be an immediate $1 per gallon surcharge on the existing federal gas tax. This would (in theory) drive down demand (for a given supply, a rise in price will create a decrease in demand). Lots of important goals involved in driving down our demand for oil, and raising the tax has been brought up before. Where Krauthammer comes through with a practical and conservative idea is that each dollar collected through the gas tax would be offset by a concomitant decrease in the payroll tax (the tax that ALL working people pay, as opposed to the income tax, which is escaped by nearly 40% of all American workers). The idea goes like this...since the average American uses 14 gallons of fuel a week, the payroll tax would be decreased by $14 per week for EVERY American worker. In theory then, the extra $14 paid at the pump is a wash.
A couple of things. This sounds good, and the revenue neutral nature of it is wonderful. I think the shock of a dollar a gallon increase WOULD drive down demand, and I think all of the wonderful things Krauthammer claims will happen (actually, a dollar may not be enough, but Krauthammer thinks it is about all that could be politically palatable. The hit in the payroll tax would be immediately made up for (revenue wise) by the added gas tax. Everything sounds really, really good about this. But there are a few warts in it.
The first is the obvious hit that folks in the travel and tourism industry would take if people drove less (the impact of the higher gas tax). Krauthammer would argue that the extra dollars they have in their pockets COULD go to pay for fuel if they were motivated to travel. But it probably wouldn't.
The second thing not discussed here came up in a chat with the Kitten, who saw the issue a little differently. As Krauthammer discusses, this tax hike is designed to punish people who drive more....especially those who drive more than 14 gallons a week. Folks who live in cities or suburbs, where all the things you need are located quite close-by, where mass transit options exist, where many people do not even consider OWNING a car...really get a good deal here. Folks who live in rural America who drive 30 miles to the closest Wallmart and who really LIVE by their cars--they are going to suffer. Kitten sees this as a fairness issue. I agree, but as Krauthammer points out, we screw one group of people over others on tax policies aimed at encouraging behavior all the time (tuition tax credits favor folks who go to school over those who don't, don't even get me started on how single people get screwed in the tax code).
I see it less as a fairness issue and more as an a source of political friction that the oh so urban and urbane Krauthammer isn't thinking about. This sets up a classic "country-mouse/city mouse" set up, where rural America thinks they're getting screwed by the already pampered (transportation-wise) sector of the country living in and around cities.
I find myself thinking this is a pretty good plan, and I drive more than 14 gallons a week. I think it wouldn't be a very smooth path to passage in a Congress sometimes beholden to its rural interests (see the annual Farm Bill), but I think it is worth trying.