Today, the Wall Street Journal editorial board expresses the common concern that a gas tax increase would not be offset by corresponding tax cuts, but would instead be consumed by increased government spending:
Speaking for ourselves, we don't favor a carbon tax. In theory, such a tax might make sense if it were offset by lower taxes on income tax rates and capital investment--which would be a net plus for economic growth. However, there's not a chance in melting Greenland that the current Congress would offset any new carbon taxes; it would merely pocket the extra revenue to permanently increase the government's share of GDP.
The solution, I've argued, is to create a Federal Reserve for gas taxes:
[T]he government's commitment to ensuring that people get a fair deal from a gas tax is not credible. Politicians have every incentive to take the extra revenues and put them toward more pork while taking back the accompanying tax cut over time. So why not have an independent Federal Reserve-type board of economists that's responsible for adjusting the tax cut to maximize fuel efficiency without creating economic dislocation? The board could also be responsible for creating a yearly tax rebate that could be administered separately from the normal income tax system. That way people would see the proceeds from the gas tax coming back to them in a transparent way.
Isn't this the only way to make the politics of a $1/gallon gas tax hike feasible?
"Isn't this the only way to make the politics of a $1/gallon gas tax hike feasible?"
Well, no.
Rebating any gas tax dollar for dollar with the payroll tax would likely be more feasible, and at even higher levels than $1/gallon.
Posted by: Petey | July 11, 2007 at 11:20 AM
The concern seems to be that Congress will spend any new Carbon Tax; apparently the WSJ missed the last 6-years where Bush & Co. already spent it and in the process ran up debt & unfunded future obligations to at least $40-trillion. Rather than offsetting tax cuts how about we offer some relief to the future generations we've been screwing with these irresponsible fiscal policies? Along the way we could eliminate the latest middle class & big pharma welfare program by dropping the Medicare drug benefit. (as long as we're suggesting the politically impossible).
Posted by: Mark Close | July 11, 2007 at 12:50 PM
How about hiking oil tariffs? Maybe $20/barrel. Just on imported oil, not domestic crude. The carbon/gas tax may not be politically possible. But Americans can get behind taxing Iran, Saudia Arabia, and Venezuela. This would seem to support the goals of fighting global warming CO2 and hurting OPEC, fighting terrorism, reducing U.S. dependence on foreign oil, and helping Texas (and Louisiana and Wyoming and Alaska) oil companies. The money could be refunded to the poor through the EITC or FICA tax. Who would oppose this? Not Cheney/Bush/Halliburton/Exxon. Not Gore or Dems. If the law provides for 100% revenue neutral tax offsets, you won't need a Federal Reserve to police it.
Posted by: Joe Richer | July 11, 2007 at 12:57 PM
All too predictably, the purported concern over global warming becomes a pretext for the single most important article of the Democrats' True Faith: redistribution of wealth. Those who are serious about global warming should support not just a $1 a gallon tax but a really stiff tax--perhaps $10 a gallon. That's what it will take to change people's behavior in a meaningful way. And there's no reason to refund the tax to the groups that the politicians favor that week. The Government can use the money to reduce the deficit.
The next thing people who are serious about global warming will do is support the construction of new nuclear power plants, a proven technology available today to replace fossil-fuel plants.
And last but certainly not least, those opinion leaders who claim to care about global warming will be honest with the public that reducing greenhouse gases enough to reverse global warming will require sacrifice. It will be expensive, and it will require us to live our lives very differently from the way we live them now.
Nobody wants to deliver that message, so instead the people are told that curing global warming will be good for the economy and require no more sacrifice than changing the light bulbs or making other trivial modifications to their lives. Al Gore can't be dumb enough actually to believe that. Or can he?
Posted by: Rob | July 11, 2007 at 01:25 PM
No, Gore doesn't believe it and neither does anyone who is really concerned about the environment. However, having spent my life striving to save endangered species through both action and education, I can personally attest to the general publics aversion to sacrifice. If, during a talk, I suggest something as simple as walking to the store rather than driving, I can watch the audience literally turn off. It may well take a catastrophe but right now the only option is ever so slowly easing them into an attitude change. Sadly, those of us on the front lines are all too aware this isn't going to happen overnight. Hell, the signs and warnings have been around for well over thirty years. Look at how little progress has been made.
Posted by: Richard | July 11, 2007 at 02:08 PM
I wonder if it would make sense to use the proceeds from this new 'Federal Reserve Gas Tax board' to provide a rebate to 'green' energy producers (or consumers?). The idea would be to turn over a doller's worth of carbon tax to a producer of energy (say wind, solar or nuclear) that makes energy without producing C02 as a byproduct.
The rates would be adjusted quite often to make sure the carbon tax is 'revenue neutral' from year to year. Might be a good way to self finance incentives for alternate energy.
Posted by: Gary | July 11, 2007 at 02:49 PM
have one question: if we offset a gas tax with an income tax cut, won't people just spend the extra income on gas, and consume at the old level? Isn't the point of a gas tax to make gas relatively more expensive, not just absolutely more expensive? And if that's not the case - if there really is some psychological barrier to higher gas prices that has nothing to do with its relationship to your income - couldn't we solve the issue by just quadrupling the price of gas at the pump, but give everyone a full rebate for the surplus cost at the end of the year?
Posted by: Matt G | July 11, 2007 at 04:51 PM
The WSJ contention : "Congress ... would merely pocket the extra revenue to permanently increase the government's share of GDP." is wrong because that money will never be available to congress as discretionary funds. It's already committed to paying off the debt and interest incurred by the irresponsible characters who run this administration.
What they have done, very effectively, is to preclude future congressional spending options with massive commitments already made during 2000-2006. It's a great strategy, especially if you're personally collecting brokerage fees, etc., when those commitments are being made.
No doubt those future payments will have to be made by cutting social programs, thus completing the transfer of government expenditures from people to corporations.
Basically, the small monies generated by any carbon tax will be swallowed up whole to payoff Iraq war debts.
Posted by: Jacob Marley | July 17, 2007 at 11:20 AM