Sunday, December 28, 2008

December 28th discussion item

Charles Krauthammer, writing in the 5.January edition of The Weekly Standard offers a plan for a net-zero Gasoline Tax that has astounding applicability from a National Security point of view for the U.S.A.

It is a lengthy read, but one worth the time.

Open Ground:
Once one has his entire argument in hand, what do you think of it? What unintended consequences come to mind, and what obvious flaws (if any) do you see? Is there a better or different mechanism available to reach the same goal?

Have at it!

6 comments:

Kate said...

A very interesting article, I have been meaning to comment on it since last night... I am not an economist, so I am not sure I fully grasp all the implications of what this would accomplish.

A few questions:
1. If this is such a blindingly obvious solution, and from what I can see, the benefits would be enormous, why has it not been seriously discussed before? Are there any cases in which this has been successful?
2. If the objective of this is to put money back in the consumers' hand, to stimulate the economy, would there be any restrictions on the ways in which the money can be spent (such as, to only US-based companies)? Krauthammer says it can be spent on anything, but if it were to be spent outside the US domestic economy, on a large scale, would this in fact be a detriment to our own economy?
3. How would this affect those who use public transportation? (I am thinking of myself here.) Just for the sake of discussion, let's say that a gallon of gas goes up to $3. Because this is a significant increase from current prices, I would assume that some people, instead of driving, would elect to use mass transit. Thus, the number of riders goes up. Knowing at least how the DC public transportation system works (or does not work, depending on the day) they would not increase the number of buses or trains, but would certainly increase the price of the fare. (For the bus, it is a fixed price; for the metro, it is based on the distance traveled. I take both to get to work. In one day, I spend almost $5 to get to and from the office.) Because most commuters who utilize mass transit in large cities would surely be paying more than $14/week, would there be an adjustment made for them if they could prove their use of said mass transit.
4. Who is going to be overseeing this? Will we have to create yet another bureaucratic institution?

What I most appreciated about the argument is that the price would be determined by the US and not dictated by OPEC.

Last thing: while Krauthammer suggests that raising the tax during a recession could be very detrimental, I don't know that I necessarily agree with that, chiefly because there are certain things which must always be purchased despite the economic climate, and for the time being, gasoline is one of them because we all need to go places (work, school, run errands at the market, etc.). Surely many would have to cut back on other things, but if the long-term goal is to move us away from our seemingly insatiable thirst for oil, the significant price increase seems that it will have that effect.

Susan said...

High gas prices, whether achieved by market forces or by government imposition, encourage fuel economy. In the short term, they simply reduce the amount of driving. In the longer term, they lead to the increased (voluntary) shift to more fuel-efficient cars...

Hence, our $1.47 for the unleaded--

Yup-- you drive all your errands in one day and forget the day by day....

At one time, there were not cars-- horses---

walking...

Chavez is not smiling right now-- I bet...

L.Douglas Garrett said...

@Kate

It looks, in principle, like some of the tax schemes in Europe and Asia to suppress fuel consumption. The U.K. is a good example.

It may be blindingly obvious, but likely it is too subtle for the average policy-maker to have noticed. Those who did might well have been put off by the obvious political opposition that fuel-dependent industries would have to such a plan.

What it does that is new, in Krauthammer's case, is to do it on a revenue-neutral basis (at least at the start). That isn't stimulus, as per se, but it does free up money in those cases where the taxpayer uses less fuel than average (and ties up some from those who use more than average).

As far as Public Transportation, the matter would be evaluated something like Fuel Costs go up, so Transit Fares go up; One already trades off (some of?) the base operating and storage costs of a car if one is able to depend on Public Transport; So the question is how much of the payroll tax rebate would be eaten up by the increase in the Fares.

Yes, it would have to have an Evaluation Office to set the monthly or yearly rate for the payroll tax rebate.

Since it is planned as revenue-neutral, it *should not* directly add to taxation...


@Susan

The trick will be, if it works, that Chavez keeps seeing revenues that look like $1.47 a gallon gas, but the domestic market in the 'States sees what looks like $3.00 a gallon and reacts by continuing to suppress fuel usage.

(Interesting historical note: New York City, at the turn of the 20th Century, was overjoyed that gasoline engine lorries would replace horse-drawn wagons as they were so much *less* polluting.)

ruggels said...

I don't want to change my driving habits.

I am not an economist,but philosophically raising taxes, is just against my nature. My general ideal is starving off government to a level that it is not inhibiting liberty. Even though it's revenue neutral, it's still a tax.

For the Freedom Loving American that I am , I don't want to have to pay more. Sure Chavez may have problems with cheap gas, but I would have a problem if the cost of driving to Vegas over a long weekend to visit friends, and enjoy a change of scenery would become prohibitive. Changing driving habits feeds right into the "Smart Growth crowd" that wants to keep soviet style High rise apartments near light rail hubs, limit urban sprawl, and otherwise keep th residents, i.e. the tax payers within municipal limits so they can tax the hell out of them for worthless programs not related to roads, fires and Schools (like free health care for Illegal Aliens..). I adore suburbia, and it's nice streets, low crime, and back yards. I live in an apartment right now, and I hate it. I reject the attempts at social compression or any other European idea here in the U.S. it's Socialism in the end.

Economically this would kill me. Right now I work as a messenger driver for a firm that delivers to the entertainment industry primarily, usually small to medium sized parcels. it's a shitty job, but I have it. I have a daily minimum of around 100 a day. For every package I deliver, I get half of what the company charges a client, the company keeps the other half, and parcel charges are graded by how fast you want it there. However in this job I have to use my own car, and Gasoline is deducted from my paycheck, We get a slight deal for fleet gas purchase, but not that much of one. At the height of the June prices I was paying $300.00 a pay period for gas. Now I am paying about $100.00, two to three fill ups a week depending on conditions for a 16 gallon tank in my Camry. The car is my own and is not commercial, nor is my driver's license, so I would not qualify for an exemption or a rebate.

Finally, as someone in the Wall Street Journal said, if the UAW is being intractable, then fine, revoke the CAFE standards and build the cars people want to buy, and for most people they want a car large enough to allow one to survive an impact with a truck, and carry 3 kids and a full load of groceries. (and a dog). I've seriously looked at a Smart Car, and I am impressed with the engineering, and it would be a good second car, but what I really want would be the modern equivalent of a 1972 Ford Country Squire Wagon with the 447 Cu.In V-8, or a 1969 Charger. or an H1 (not an H2 ) Hummer. The Smart would be nice for the current job, but I really want a car I can lie flat in, drive long distances, and not worry about the impact on my wallet. I want to go 400 plus miles between tanks of gas. I miss my 1969 Oldsmobile 98 Holiday Hardtop two door.

In short, no I am not an economist but I want this idea to go away, If we have a [problem with Chavez, do it toe old fashioned way, CIA assasination or a aircraft carrier visit.

Scott

Kate said...

...about a month later, Lugar opines in WaPo : http://www.washingtonpost.com/wp-dyn/content/article/2009/01/30/AR2009013002728.html

L.Douglas Garrett said...

Thanks for remembering this thread, Kate!

Senator Lugar seems intent on taking the idea to the Administration. Let's keep an eye on this and see if it goes anywhere...

...and what the Evaluation Mechanism would be, because that is where this good idea could go very wrong.