A gas-tax boost could be progressive
A lot of readers disagreed with my criticism of corporate average fuel economy (CAFE) standards, and most didn’t like my proposed alternative: higher gasoline taxes. Several of them said they disliked the gasoline tax because it is regressive — that is, it hits the poor a lot harder than it hits the rich.
But these readers haven’t thought through the other part of the equation: what the government does with the new revenue. If it’s used to offer a subsidy to yacht buyers, the overall effect clearly is regressive. But if it’s used to reduce other taxes, such as the FICA payroll tax, the tax system could be made more progressive overall.
Some of my environmentalist critics might be surprised to hear it, but this is exactly the approach proposed by Al Gore. In a speech last year at Wal-Mart’s headquarters, Gore said:
We should sharply reduce payroll taxes and make it all up in CO2 taxes so the low- and middle-income people don’t bear the cost burden of this big transition in energy sources.
He elaborated later in a speech at New York University:
For the last fourteen years, I have advocated the elimination of all payroll taxes — including those for social security and unemployment compensation — and the replacement of that revenue in the form of pollution taxes — principally on CO2. The overall level of taxation would remain exactly the same. It would be, in other words, a revenue neutral tax swap. But, instead of discouraging businesses from hiring more employees, it would discourage business from producing more pollution.
One wouldn’t even have to be as radical as Gore to implement a gas tax with progressive overtones. Just cutting the payroll tax for folks earning less than, say, $35,000 a year would be a good use of the revenue.
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David Nicklaus has covered St. Louis business for more than 25 years. His column appears three days a week on the Post-Dispatch business page. 
I have been advocating the same policy since at least the “energy crisis” of 1973. I’m glad that a few people outside of Europe are catching on. In Europe, the policy has been referred to as “tax shifting,” which is an appropriate term for it, because there is no economic reason why a tax on oil or gasoline can’t be offset by a reduction in another tax.
Americans are forever searching for solutions that look like “easy ways out” because they APPEAR to place the burden of the solution on somebody else, or to be “free.” In the case of the CAFE approach, people figure that the auto industry will be forced to manufacture small, fuel efficient cars for “everybody else” to buy, while they continue to stroke their own egos by purchasing HOGGs (high overhead gas guzzlers). The reality is that this policy will drive up the price of all vehicles to the point that they become less affordable.
The other approach that appears to be a “free ride” is to subsidize whatever alternative to oil has the most political support — such as ethanol, soy diesel, and perhaps oil from livestock manure to appease the livestock industry. Not only does this approach cost people as taxpayers by reducing government revenues (thereby requiring other taxes to be increased) but also costs them as consumers, WHETHER OR NOT THEY CONSUME OIL OR GASOLINE DIRECTLY, by driving up the price of all products made from corn and other grains.
Basic economics says that society as a whole doesn’t get something for nothing. Basic ethics says that the people responsible for consuming a product like oil that causes major societal risks and damages should pay the full cost of those negative impacts. A tax on oil is the most fair and efficient way to incorporate those negative impacts into the price.