Despite not being an economist, the NY Times’ Tom Friedman makes good economic sense to me in his recent column, Win, Win, Win, Win, Win …. Speaking about falling oil and gas prices, Friedman had this to say:
Which play? The one where gasoline prices go up, pressure rises for more fuel-efficient cars, then gasoline prices fall and the pressure for low-mileage vehicles vanishes, consumers stop buying those cars, the oil producers celebrate, we remain addicted to oil and prices gradually go up again, petro-dictators get rich, we lose. I’ve already seen this play three times in my life. Trust me: It always ends the same way — badly
Friedman calls for a hike in the federal gas tax (or on oil itself, which would be broader and better). Implemented properly, this makes a great deal of sense to me. There are three good reasons for increasing the gas tax; global warming, terrorism and the federal budget. Higher gas prices mean less gas consumption, through less miles driven and better mileage. With the recent drop in gas prices, purchases of trucks and SUVs are predicted to outpace regular cars again. If we want to stop global warming, we need to stop burning so much fossil fuel. Higher gas prices also means that revenues for gas go to the federal government rather than foreign oil supplies. Al Queda and other terrorist organizations get part of their funding from those made rich selling us oil. So, higher taxes on gasoline means less money to fund the war on us. Lastly, more revenue for the government means less debt, more spending or lower income taxes. There have been calls for a revenue-neutral hike in gas taxes, where the gas tax is offset by lowering income taxes. Depending on the political winds, at least one of these choices is good.
If you disagree and have made it this far, you are asking how we can increase taxes during a recession, especially one that will disproportionately fall on the poor. There are several possible responses to this. One is the revenue-neutral idea, which can be modified for the uneven impact on the less fortunate. Another is to legislate the tax now, but delay and slow its implementation. The tax could go up one nickel per gallon each month for eighteen months starting in six or nine months. With this approach, the tax will only come into play as we begin to come out of the recession. If we are not coming out of the recession by then, Congress could extend the start date. A slow and certain increase gives everyone the chance to adjust, to find alternate means of transportation, buy a more fuel efficient car or to move closer to work or school. Car manufacturers can also rely on a predictable change in demand. The Big Three (or whatever is left) can refit their factories to build fuel-efficient cars without taking a big risk that consumers will not want them.
This is a simple, clear choice with no down side from my point of view.
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