The basic point here (NY Times, registration required) is pretty good: the idea of coupling a gasoline tax increase with a cut in payroll taxes deserves a much closer look. It makes sense as a policy—gas taxes should be higher, and a payroll tax cut could help soften the blow. Plus, pairing a tax increase with a tax cut seems to draw far broader political support than a straight-out hike in gas taxes:
The gasoline tax-cum-rebate proposal enjoys extremely broad support. Liberals favor it. Environmentalists favor it. The conservative Nobel laureate Gary S. Becker has endorsed it, as has the antitax crusader Grover Norquist. President Bush’s former chief economist, N. Gregory Mankiw, has advanced it repeatedly.
Ok, so it’s a good idea. But I can’t help myself—I’m going to pick some nits.
Find this article interesting? Support more research like this with a gift!
First, I think it’s going too far to claim, as the article seems to, that it will be easy to sell this kind of thing to the public. Voters seem to forget about tax cuts: for example, in the runup to the 2004 election—and despite the administration’s efforts to tout their income tax cuts—US voters were more likely to say that their taxes had gone up over the previous 4 years than down. On the other hand, everyone knows when gas prices go up—it’s emblazoned over every filling station. So people will be reminded of the tax increase every day, but notice the tax cut they only see if they look carefully at their payroll records. That’s a pretty good recipe for outrage, unless you work really, really hard to explain to people what’s happening.
Second, there are still some regressive effects here. If you’re a retired senior, you don’t pay payroll taxes—so you’ll see no benefit from the payroll tax cut. But you’ll still be hit by higher gas taxes. Same thing if you’re unemployed. (Undoubtedly the AARP, among others, will have a few things to say about this.)
Third—why just gas? I know, I know, oil makes us vulnerable to foreign political shocks, sucks money out of the economy, yada yada. But gas represents only 43 percent of total US petroleum consumption (see here for details); so we should be taxing all petroleum consumption, not just gas. And more broadly, natural gas and coal are both major greenhouse gas sources—coal even moreso than gasoline. Coal-fired power plants are also bad news for air quality, and put mercury in our fish. And natural gas production within the US is headed in the same direction as oil—down—which means that soon enough our natural gas imports will start sucking serious money from the economy, just as oil imports do now. All of which suggests to me that a broader tax on carbon, or natural resource use, would be better than just a tax on gas—and might even allow for steeper payroll tax cuts.
And finally—gas taxes are all well and good. But they’re not the be-all-end-all when it comes to promoting fuel efficiency. Pay by the mile car insurance and feebates get even less air time in policy circles than tax shifting—but arguably would be just as effective, if not moreso, at promoting fuel conservation. Obviously, I’m always glad to see gas taxes discussed in a public forum. But it would be even niftier to see other worthwhile ideas get some attention.