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Re: Gas Tax Cont’d



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Jonah, on balance, it might turn out to be a good trade-off, but I think there are several issues with the proposal to raise gas taxes, one philosophical and couple practical:

  • It is a consumption tax, but it is a tax on a specific kind of consumption.  On what basis should we say that driving should be taxed more than eating Cheetos or watching big screen TVs? 
If the argument is that it is because we’re spending a ton of money on roads and related infrastructure stimulus spending, then it seems backwards — we’re going to pump tons of money into roads, highways and bridges in order to stimulate the economy, and therefore drivers should be taxed to pay for this.  It seems to me that you would be far more effective stimulating the economy with a FICA tax holiday for the next several months, which would cost what our new president wants to collect from us in order to allow government employees to spend it for us.  If one believes that this spending on roads is really required by car drivers, then I’d really like to see the increase in my insurance premiums created by other people eating Cheetos, so I can have a proper baseline for comparison.
  • The politics of this, if it were more than a very small raise, would likely get very tricky, and have the potential to, as always, hose the middle class in a non-transparent way.  A gas tax is highly regressive, in that people with low incomes spend a much higher proportion of income on gas than the middle class. Therefore there would almost certainly be a big push for offsetting tax credits or rate reductions to fix this effect. But on the other hand, because of transfer payments and other factors, people with lower incomes spend less on gas as a fraction of consumption than do the middle class. So if such offsets were put in place, it would effectively transfer tax burden onto middle class taxpayers. Some, of course, would see this as a feature, but to me it sounds like a bug.
  • Right now it is a big deal to change gas tax rates, which is a barrier to increasing them. As with all increases in tax rates, an increase sets a precedent that this is something that can be tweaked. This problem is especially pernicious with consumption taxes, as opposed to income taxes, because it is much less visible. Certainly, this is an issue that has bedeviled Europe for decades.


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