Politics & Policy

Gas-Tax Follies

Krauthammer's gaseous argument.

How poorly argued was Charles Krauthammer’s brief for higher gas taxes the other day? We’re supposed to be sad that we let cars get heavier again, after they got lighter during the oil-price spike of the 1970s. So people react to market prices–what’s the problem here?

”We had a golden moment, and we let it pass. The way to lock in our gains then would have been to artificially raise the price of gasoline with a tax that would depress consumption, maintain consumer demand for fuel efficiency and, most important, direct much of the pump price into the U.S. economy (via the U.S. Treasury) rather than having it shipped to Saudi Arabia, Russia and other sundry, less than friendly places.”

I’m not sure why depressing consumption and maintaining demand for fuel efficiency are supposed to be good things in themselves. Krauthammer refers to “oil blackmail and price vulnerability.” On the assumption that he means two different things here, I’m guessing “price vulnerability” is his way of complaining about the damage that higher prices can do to our economy. But how is imposing that damage on ourselves, forever, a solution to that problem? As for the “blackmail” point, it’s overrated for a variety of reasons–but surely Krauthammer realizes that neither taxes nor drilling in America is going to do much to reduce the geopolitical importance of oil to the global market.

I can see the appeal of directing funds to the U.S. Treasury rather than to the Saudis–but that assumes that the price is already at or near its profit-maximizing point and that a tax won’t raise prices, and hence won’t depress consumption and increase demand for fuel efficiency.

Krauthammer wants a $3 price floor for a gallon of gas. When the market price drops, the Saudis will get less money but the Treasury will get more. “The U.S. economy keeps the rest in the form of taxes–which should immediately be cycled back to consumers by a corresponding cut in, say, payroll or income taxes. Keep gasoline prices high and American consumers will once again start demanding and buying lighter and more fuel-efficient cars–exactly as they did in the late ’70s and early ’80s. Prices will continue to drop, and the U.S. economy will capture the difference.” It may well be that a switch from payroll taxes to gas taxes is a trade up for the economy. But a dropping price of gas is going to be captured by the U.S. economy in the absence of a gas tax. It’s just that consumers will be able to choose how much of the gain they want to spend on bigger cars–without the federal government’s interference.

Ramesh Ponnuru is a senior editor for National Review, a columnist for Bloomberg Opinion, a visiting fellow at the American Enterprise Institute, and a senior fellow at the National Review Institute.

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