Tax gas more and other stuff less
Not so long ago, it seemed like gas at $2.33 a gallon cost an arm and a leg; now it seems like a bargain. And not surprisingly, high prices at the pump have spawned a backlash against fuel taxes across the U.S. — and have added fuel, so to speak, to the campaign to repeal Washington state’s most recent gas tax hike.
As a general matter, I think responding to high gas prices by rolling back taxes is misguided. The specifics get murky, of course, since a lot of the money raised by gas taxes is slated for dubious highway projects — so a vote for higher gas taxes isn’t always a vote to reduce gas consumption. But in general, gas taxes are too low, not too high: Right now, they don’t even pay for roads, let alone incorporate all of the other external costs (pollution, greenhouse gases, noise, collisions, congestion, etc.) caused by driving and burning fossil fuels. A stiff & sustained gas tax would do a lot more to reduce gas consumption than all the preaching in the world.
Still, even though I tend to favor higher gas taxes, one thing is clear enough: Gas taxes are regressive. Like high gas prices, they hurt the poor the most. Which, if you care about fairness and equity in the tax system, is a bad thing.
The question is — as a matter of policy, what do you do about that? Do you forego a gas tax hike on equity grounds — and just accept extra gas consumption as a consequence? Do you raise taxes, and just accept the resulting inequities?
Or do you do something smarter?
To me, the smartest strategy, both for discouraging gas consumption and making the tax system fairer, is tax shifting — that is, raising taxes on gas, but lowering other regressive taxes, such as state sales taxes. Or, in the alternative, you could raise sales taxes and also boost the EITC. Or, mix and match — roll your own tax shift! Depending on how you structure it, you can reduce the total tax burden on the poor, while still creating across-the-board disincentives for gasoline consumption.
It seemed like a completely reasonable idea when I first heard about it — but I hadn’t heard many other folks making the same argument. So I was pleasantly surprised to see similar thinking starting to echo around the blogosphere: see, for example, here and here, along with a reference to this pdf.
Here’s hoping this is an idea that keeps echoing.