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The Case for a Higher Gasoline Tax

New York Times, 21 February 2013

THE average price of gasoline in the United States, $3.78 on Thursday, has been steadily climbing for more than a month and is approaching the three previous post-recession peaks, in May 2011 and in April and September of last year.  But if our goal is to get Americans to drive less and use more fuel-efficient vehicles, and to reduce air pollution and the emission of greenhouse gases, gas prices need to be even higher. The current federal gasoline tax, 18.4 cents a gallon, has been essentially stable since 1993; in inflation-adjusted terms, it’s fallen by 40 percent since then.

Instead of penalizing gasoline use, however, the Obama administration chose a familiar and politically easier path: raising fuel-efficiency standards for cars and light trucks. The White House said last year that the gas savings would be comparable to lowering the price of gasoline by $1 a gallon by 2025. But it will have no effect on the 230 million passenger vehicles now on the road.       

Greater efficiency packs less of a psychological punch because consumers pay more only when they buy a new car. In contrast, motorists are reminded regularly of the price at the pump. But the new fuel-efficiency standards are far less efficient than raising gasoline prices.

In a paper published online this week in the journal Energy Economics, I and other scientists at the Massachusetts Institute of Technology estimate that the new standards will cost the economy on the whole — for the same reduction in gas use — at least six times more than a federal gas tax of roughly 45 cents per dollar of gasoline. That is because a gas tax provides immediate, direct incentives for drivers to reduce gasoline use, while the efficiency standards must squeeze the reduction out of new vehicles only. The new standards also encourage more driving, not less.

Other industrialized democracies have accepted much higher gas taxes as a price for roads and bridges and now depend on the revenue. In fact, Germany’s gas tax is 18 times higher than the United States’ (and seven times more if the average state gas tax is included). The federal gasoline tax contributed about $25 billion in revenues in 2009.

Raising the tax has generally succeeded only when it was sold as a way to lower the deficit or improve infrastructure or both. A 1-cent federal gasoline tax was created in 1932, during the Depression. In 1983, President Ronald Reagan raised the tax to 9 cents from 4 cents, calling it a “user fee” to finance transportation improvements. The tax rose again, to 14.1 cents in 1990, and to 18.4 cents in 1993, as part of deficit-reduction deals under President George Bush and President Bill Clinton.

A higher gas tax would help fix crumbling highways while also generating money that could help offset the impact on low- and middle-income families. Increasing the tax, as part of a bipartisan budget deal, with a clear explanation to the public of its role in lowering oil imports and improving our air and highways, could be among the most important energy decisions we make.