A Higher Gas Tax Is the Answer. Who'll Ask the Question?


The Bush Administration's fiscal 2003 budget begins with a ringing wartime summons from the commander in chief himself. "Americans will never forget the murderous events of September 11, 2001," says President Bush in the opening words of his budget message to Congress. "They are for us what Pearl Harbor was to an earlier generation of Americans: a terrible wrong and a call to action."

What sort of action? "Bold" action, says the President. To wit: "I ask Congress to raise by more than 80 cents, to $1 a gallon, the federal tax that Americans pay on gasoline—and to increase low-income energy assistance and other programs that will help the poorest pay. This will be burdensome for many, but paying a surcharge on gasoline is one way all Americans can help fight terrorism, because it will finance our war effort while bringing closer the day when we can declare energy independence from regimes such as Iraq, Iran, and Libya. I call that a good bargain."

Wow. That is big news. Pity it didn't happen. As you have probably guessed, the entire quotation in the paragraph above is made up—with the exception of the word "bold," which Bush used to describe his program. Bold he has been: bold enough to beat the Taliban and rout Al Qaeda, bold enough to reorganize America's security relationships with countries all over the world, bold enough to launch an unprecedented homeland security effort, bold enough to create what amounts to a new justice system for accused foreign terrorists. But not bold enough to propose a hike in the gas tax.

This seems odd. America depends on oil from dubious friends such as Saudi Arabia, and from undoubted adversaries such as Iraq and Iran and Libya, not primarily to heat our houses or power our refrigerators (gas, coal, and nuclear power can do those jobs) but to fuel our automobiles. "The key market that we're so dependent on oil for is transportation, and really not anything else," says Edward Porter, an economist with the American Petroleum Institute.

As of September 11, every single person in the United States, including persons in a vegetative coma, agreed that the country's dependence on Arab oil had become a pressing security threat. Oil is the great empowerer of tyrants, and tyranny is the great breeder of terror and the great enemy of American values and interests. Oil induces America to coddle regimes that, by rights, we should be prodding toward democracy or upending. Oil forces America to fight a terror network while simultaneously pouring money into the pockets of terrorism's supporters and enablers.

If not for oil, Islamic dictatorships such as Saudi Arabia—which sits on fully 25 percent of the world's oil reserves—would be peripheral to U.S. strategic interests and too poor to finance terror around the world. On September 10, the Saudis looked pretty reliable, and the threat of Islamic radicalism seemed far away. Now we know better. Whether wriggling free of economic dependency on the likes of Saudi Arabia and Iraq should be No. 1 or, say, No. 3 or No. 4 among America's priorities is rationally debatable. But that it is near the top of the list is not.

On September 10, the federal government was in clover. Despite a slowing economy and Bush's tax cuts, the question was how large the budgetary surpluses would be. Then came the war. Now the Administration projects a deficit of $106 billion in this fiscal year. Moreover, the Administration's forecast that deficits will decline through 2004 and then turn into surpluses in fiscal 2005 are conditioned on domestic-spending restraint that, for the most part, will not happen. Just around the corner is the retirement of the Baby Boom Generation, which will put still more pressure on the budget. Unless the war is cheaper, the economy stronger, or Congress more frugal than seems likely, America now has a potentially chronic deficit problem.

In short, the world has changed. Before September 11, a steep gas-tax increase seemed important to environmentalists (who worry that burning fossil fuels causes global warming) but unnecessary to everyone else. After September 11, a steep gas-tax increase seems made-to-order to address the biggest strategic and fiscal problems that the country now confronts.

One might think, then, that someone in a position of political leadership would mention the idea; but the silence is deafening. Gas tax? "It's a political death sentence," one Senate aide says, reflecting the universally received wisdom. "This is an election year, and I don't think you're going to find anyone willing to stick their neck out that far."

Instead, politicians talk about increasing the mandatory fuel-efficiency standards for cars. Raising these so-called CAFE requirements would indeed help reduce gasoline consumption, but at a cost that the idea's advocates prefer not to mention: lives. Smaller cars are deadlier cars—particularly, but not only, in collisions with larger cars. A National Academy of Sciences study panel recently found that the reduction in the average size of cars since 1976 caused between 1,300 and 2,600 additional fatalities in 1993 alone. (The upper-range estimate is nearly as high as the estimated death toll in the World Trade Center attack.) Although a high gas tax, too, would tend to reduce vehicle size, it would also encourage people to get out of their cars altogether, thus saving both lives and oil.

Other politicians talk about high-tech alternatives to gasoline: hydrogen-consuming fuel cells, for instance, and miserly hybrid motors. Ultimately, such technological breakthroughs offer the only real escape from dependence on the Saudis. But new technologies are practical only if they are economically competitive; otherwise, investors will not finance them, companies will not market them, and consumers will not buy them.

One way to make new technologies competitive with gasoline is to reduce the cost of the new technologies, by means of intensive R&D programs and the like. Fine. But the other way to make new technologies competitive with gasoline is to raise the price of gasoline. Increase the gas tax, and, overnight, you make alternatives more attractive to investors and consumers. Taxing gasoline more heavily and looking for ways to replace it are complements, not alternatives. Surely a sensible country, in America's situation, would do both.

It is true that gasoline taxes, like most sales and excise taxes, are regressive, squeezing the poor hardest; but that problem is surmountable. "There could be compensating changes elsewhere," says William Gale, an economist at the Brookings Institution. "We should be thinking about progressivity and regressivity in the context of the overall tax system. Not every single feature of the tax system needs to be progressive to satisfy distributional needs."

In any case, gas prices in America are low today, by both historical and current world standards. Since 1918, inflation-adjusted gas prices in the United States have trended steadily (though not smoothly) downward, to about half the level of the 1930s. Gas taxes total 42 cents a gallon, of which the federal portion is all of 18.4 cents. As a share of the price that consumers pay at the pump, total gas taxes (federal plus state) are about half the rate in Canada and a third the rate in Europe. That does not make Canada's or Europe's tax rates right, or America's wrong, but it does suggest that a high gas tax can be consistent with a thriving modern economy. Moreover, each penny of a federal gas tax translates into about $1.3 billion in revenue. A federal gas tax of, say, $1 a gallon would pay for the war effort, and then some.

When America contemplates military action in the Middle East or anywhere in the Islamic world, the first question everyone asks is: What about oil prices? A higher gas tax could help mitigate that problem, too: The tax could be designed to float in partial counterpoint to world prices, so as to help stabilize the price at the pump. That will matter when the United States goes after Saddam Hussein.

Yes, tax increases are bad for the economy, other things being equal. There are 16 barren acres in lower Manhattan, however, that say other things are _not_ equal. Phase in the tax increase so that it mostly bites after the current recession is over, and the economy will be fine. Yes, a high gasoline tax is no one's first choice. It will be a pain in everybody's backside. Nonetheless, the strategic and fiscal benefits of a gas-tax increase are such that, post-9/11, it is crazy not to consider one.

Conjecture: If the President chose to lead on a gas-tax increase, and if he linked it clearly to American security in the post-9/11 world, the public would understand and follow—not gladly, but willingly. Perhaps, however, that would be one step too bold for a country and a President busy congratulating themselves on the seriousness of their response to terrorism.