A political commentator named Rick Gray has proposed imposing a federal surtax of $1.00/gallon on gasoline and diesel, exempting each licensed adult driver from the surtax on the first 30 gallons purchased each month. His idea is to discourage “excessive” driving — but I wonder about unintended consequences. Do you, fellow gristers, see merit in this idea?
The first third of Gray’s column makes the case for cutting back oil consumption, which I reckon need not be repeated here. The rest is quoted below:
We must begin cutting back on our consumption of oil, and every thinking American knows it.
The problem is, of course, that our two political parties prefer to focus on replacing foreign oil with something else. Preferably, something produced domestically. Ideally, something produced in abundance in the politically-vital state of Iowa.
Which is simply no answer at all. A gallon of corn-based ethanol requires nearly a gallon of gasoline to produce – making the ethanol subsidy a poor bargain, but a magnificent political boondoggle.
Besides, even if we could grow our own, switching fuels would do little to slow the melting of polar ice-caps, the rising intensity of violent weather systems, the lengthening life-cycles of destructive insects, and the spread of tropical diseases into once-temperate zones.
To reduce our dependence on oil, while addressing global environmental catastrophe, we must use less energy. To use a word grown curiously hateful to modern conservatives, we must conserve.
Great line, that!
The most effective first step toward conservation would be to engage ordinary Americans in thinking seriously about how to reduce their individual reliance on gasoline. If we could do that, the rest would follow.
The proof? Consider what happened to the market for gas guzzlers during last summer’s spike in oil prices. Or the less dramatic, but equally significant, changes in driving behavior.
Market forces work. But that does not — must not — mean we should be entirely at the mercy of unregulated markets. We can manipulate markets to provide incentives for conservation — and the obvious way to do that is artificially to raise the price of gasoline and diesel fuel at the pump.
Hmm, phrases like “we can manipulate markets” make me nervous. But read on.
The problem with this obvious solution is politics. Big Oil, Detroit, and the Club for Greed would go after a surtax the way Big Pharma and the insurance industry went after the Clinton health reforms.
You can picture the TV ads.
Still, a gasoline surtax is the obvious answer. And, since Americans aren’t very good at trading short-term pain for long-term gain, we need a surtax that doesn’t hurt too much, too quickly, or cause massive disruptions in our lives.
Indeed, we need a surtax that is easy to avoid. Because, as much as Americans hate taxes, they love avoiding taxes even more. What we need is a surtax that seriously influences energy consumption, but is relatively easy to beat.
OK, get ready for it …
Something like this …
A Federal surtax of $1.00 per gallon on gasoline (and diesel) — exempting each licensed, adult driver from the surtax on the first thirty gallons purchased each month.
NB: the overall specific-tax burden, even including existing state and federal taxes, would still be lower than is typical across most of the European Union.
With modern technology, it should be a simple matter to issue each licensed driver a magnetized card — like a valued customer discount card — which gas station pumps could be adjusted to read. The card would automatically exempt the bearer from the surtax for the first thirty gallons purchased each month. Beginning with the thirty-first gallon, the surtax would kick in.
The idea of rationing gasoline is not new: it was practiced during WWII. In the spring of 1942, 17 eastern states instituted some form of mandatory gas rationing. By the end of the year, mandatory controls were in effect across the entire country. On average, motorists who used their cars for “nonessential” purposes were restricted on average to 3 gallons of gas a week (i.e., about 13 gallons a month).
Thirty years later, during the 1973-74 oil crisis, the idea of gas rationing returned. In 1979, during the next oil-price crisis, gas-ration coupons were printed but never used.
An important difference between the war-time rationing system and the one proposed by Rick Gray is that the former involved price controls, while the latter involves, in effect, a two-tier pricing scheme. People would still be able to buy as much gasoline or diesel as they want; it’s just that they would have to pay more for it once their quota was fulfilled. In trade-economist language, it is analogous to a tariff-rate quota, or TRQ. One could call it a “tax-rate quota”, I suppose.
Nonetheless, the potential for evasion, e.g. through black-market sales, would be real. Consider this description of war-time gas rationing from “Rationing: A Necessary But Hated Sacrifice“:
Gas rationing, particularly disliked, fell victim to many of the schemes. The government claimed that “the gasoline black market involves, in many cases, experienced criminal rings, and is even drawing teen-age youngsters into its operations in dangerous numbers.” Predictably, criminals soon produced counterfeit rationing coupons, which they then sold to gas stations and drivers. The OPA estimated that fake coupons accounted for five percent of all gasoline sales in the country. Criminals also stole vast amounts of coupons. The Washington D.C. office of the OPA lost real coupons worth 20 million gallons of gas to theft while thieves in Cleveland stole coupons for five million gallons.
Let’s assume, for the sake of argument, that the ration cards would be made difficult to counterfeit. Surely such a system would be expensive to set up and administer. At the very least, it would necessitate installing new card readers at each pump (like pre-paid telephone cards, units would be subtracted after each purchase), other machines for allocating monthly credit, and 24-hour hotlines for dealing with complaints and reporting lost and stolen cards.
Would or should the under-quota rights be tradable? Efficiency suggests they should be. Would that lead to an increase in people who do not drive (yes, such people exist) applying for drivers’ licenses in order to obtain credits they could then sell for a windfall profit? (That, one could argue, would be more “fair” than subsidies to biofuels, which are financed from general tax revenues, meaning non-drivers are cross-subsidizing drivers.)
Would purchases by companies or independent truck drivers be subject to a larger quota, or be exempt from the surtax? If so, could we expect to see the formation of a large number of new businesses created just to avoid the quota or surtax?
The average American drives around 10,000 miles a year — about 30 gallons a month in a reasonably fuel-efficient vehicle. Thus, most Americans could avoid paying the tax by making minor modifications in their driving habits. Those who prefer driving gas guzzlers would have to get more creative — but most people could avoid the tax, with a bit of effort.
Such an easily avoided surtax would produce relatively little revenue, but it would work a gradual change in individual consciousness. Like dieters counting carbs, drivers would start keeping track of how many gallons they consumed each month.
They’re not already?!
Families would give more thought to consolidating trips. Those in the market for cars would look more seriously at fuel efficiency. Intelligent drivers would slow down a bit, which would make us all safer.
A surtax would also exercise a slight, but continuous pressure against long-distance commuting — thus working subtly to curtail suburban sprawl.
Of course, all of these effects would follow from a simple rise in gasoline and diesel prices, or an increase in fuel-excise taxes.
But the immediate impact of the surtax would be nothing compared with its long-term utility. Having established a method of encouraging conservation, we could gradually ratchet down the number of gallons exempted — say, one gallon every two years — until, in twenty years, the surtax applied to every gallon over twenty.
That’s a serious reduction in gasoline consumption — but one which allows plenty of time for Detroit to design sexy, fuel-efficient vehicles, and for developers to discover the potential of reviving our cities and close-in suburbs. Time, indeed, for our metropolitan areas to get serious about mass transit.
A surtax along these lines would provide a flexible tool for gradually moving America toward serious energy conservation. It wouldn’t be painless, but it would minimize disruption while imposing a slow, steady market pressure in favor of energy conservation.
And it would square with what we know about Americans’ attitudes toward taxes. By involving all of us in a perpetual hunt for new ways to avoid using more than the exempted number of gallons each month, it would enlist American ingenuity in a permanent search for ways to reduce our dependence on oil.
Worth a try, don’t you think?
Well, what do you think? Is a hybrid instrument like a tax-rate quota the only politically feasible way to raise taxes on transport fuel? Do changes in technology since the 1940s and 1970s make administering this kind of rationing system more viable and more likely to be fair?
Finally, a necessary disclaimer: by posting this I am not endorsing Mr. Gray’s proposal. Indeed, I am generally a skeptic of heavy-handed market manipulation. But I do think his proposal raises some interesting questions for discussion.
