Would a gas tax be more effective than raising CAFE standards?
James Hamilton of EconBrowser takes issue with the Bush administration's proposed increases to the CAFE standards. He basically says a stronger motivation would be a gas tax. Such a move would encourage more fuel conservation but allow allow consumers flexibility.
"When you force consumers to buy something other than their first choice, the consequences may not be quite what the policy-maker originally envisioned. One example sometimes given is the shift to SUVs. Because the initial CAFE standards were different for "light trucks" as opposed to "cars", one way Detroit responded to CAFE was to create a new supersized vehicle that in practice is used the way a "passenger car" used to be, but that wasn't similarly regulated. A second example of a possible unintended consequence of tightening CAFE is that if American cars no longer have the characteristics sought by consumers, they will buy more imports," wrote Hamilton.
More after the break
He points to a Stanford study written by Mark Jacobsen. He found that automakers fall into three groups. Toyota would be an example of the first group that has high CAFE numbers and boosting the standards wouldn't affect them much. BMW, on the other hand, doesn't meet existing CAFE regulations and simply pays the penalty. Then you have Ford that would stay just inside the standard to avoid bad publicity or litigation.
In other words, higher standards would affect only the domestic manufacturers. One possible scenario is that European automakers might "flaunt" their violations and Japanese automakers would sell more compact cars to produce more gas guzzlers.
The Jacobsen study tries to show that increasing CAFE would not have any real impact on fuel usage yet cost billions. He feels a gas tax would accomplish the same objective at significantly less cost.
Hamilton admits raising CAFE is more politically attractive
"The public evidently sees the costs associated with CAFE as borne by 'somebody else' whereas they know they pay the gasoline taxes themselves," writes Hamilton.
Someone please correct me if my memory fails, but I recall reading in either Lee Iacoca's biography or a think piece he authored that he proposed a 50-cent gas tax back in the '80s. The goal was to reduce fuel consumption and use the additional money to fund highway infrastructure improvements. The idea was rejected by President Regan but I always thought it was good one. I still do, but my only problem with a higher gas tax is that it impacts poor people much harder. If there was only some way to make it a sliding scale, but I know there isn't.
Automakers should be pressured to improve the fuel economy of their vehicles. But there should also be pressure on consumers.
[Source: James Hamilton / Econbrowser]
In other words, higher standards would affect only the domestic manufacturers. One possible scenario is that European automakers might "flaunt" their violations and Japanese automakers would sell more compact cars to produce more gas guzzlers.
The Jacobsen study tries to show that increasing CAFE would not have any real impact on fuel usage yet cost billions. He feels a gas tax would accomplish the same objective at significantly less cost.
Hamilton admits raising CAFE is more politically attractive
"The public evidently sees the costs associated with CAFE as borne by 'somebody else' whereas they know they pay the gasoline taxes themselves," writes Hamilton.
Someone please correct me if my memory fails, but I recall reading in either Lee Iacoca's biography or a think piece he authored that he proposed a 50-cent gas tax back in the '80s. The goal was to reduce fuel consumption and use the additional money to fund highway infrastructure improvements. The idea was rejected by President Regan but I always thought it was good one. I still do, but my only problem with a higher gas tax is that it impacts poor people much harder. If there was only some way to make it a sliding scale, but I know there isn't.
Automakers should be pressured to improve the fuel economy of their vehicles. But there should also be pressure on consumers.
[Source: James Hamilton / Econbrowser]
Reader Comments (Page 1 of 2)
frank78 10:39AM (3/07/2007)
Well, at the same time the upcoming difference between supply (which is starting to dwindle) and demand (US and EU always high, exponential growth in China and India) will do plenty ro raise the price of oil to where conservation will be a necessity. People will make smarter decisions regarding their driving habits and their vehicle choices once gasoline hits $3.50/gallon within the next 7 months in the US.
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Matt 10:02AM (4/23/2009)
currently i am writing a paper for my environmental policy class at the University of New Hampshire. Your main argument is that people who are poor will not be able to afford a gas tax. But isn't that the reason why we have public transportation in all cities? There are many different ways to get from one spot to another. The problem with America today is the fact that people commute 45 miles to work. If people lived closer to where they worked, then there would be no problem. A simple 5 minute bike ride from one side of town to the other is quick and simple. It would lower our dependency on foreign oil and thus decrease the price of it, making the gas tax obsolete.
I've found in my studies that car's are a huge problem no matter how you look at them. What kind of alternate energy source are we going to use for our cars? Bio-diesel? That's still oil. Electric cars? where do you get electricity? from coal fired power plants which are the number one contributor to CO2 emissions in the world. It's really a lose lose situation.
I think i'd much rather ride my bike from one spot to another haha
mobile_army_sugical_hospital 11:21AM (3/07/2007)
We need to do both. An increase in the price of gas will force conservation. If you add higher CAFE standards into the mix we can affect some real change for our country and our planet.
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Mike Z 11:22AM (3/07/2007)
A Gas Tax is a terrible Idea in totality. It will fail to raise fuel economy in any meaningful way. Take out the advantage to MPG of Diesel, and Europe, with fuel between $7-$9/gal still, still iw not significantly better than US MPG standards. In other words, the cost avoided by buying a higher mileage vehicle by a consumer does not equate to the cost-per-mile either lower or remaining equal.
A gas tax will raise the cost per-mile for Americans significantly, even if average MPG is raised significantly.
Given our physical dependency on the auto for transportation due to our decentralised nature (and inability to public transportation to ever come close to the time efficiency of the auto), it is a bad idea all around.
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Mike 11:30AM (3/07/2007)
A tax taxes the rich and poor. The rich just pay it and move on. The poor may have to do without other necessities. If you are going to tax then add a gas guzzler tax for all vehicles that don't have acceptable mpg. Make it payable each year of ownership. Make it BIG.
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Peter 11:50AM (3/07/2007)
There already is a gas tax everywhere in the U.S.- it's just an implicit tax, so you might not be aware that it's there, but it's a primary fund source for road work and infrastructure growth.
Some counties have already complained that super-low mileage cars are hurting infrastructure because they pay less than "their share" in gas taxes at the pump, leading some to suggest lowering these taxes and instead charging higher yearly registration fees to balance out the gap.
I think what is being proposed is a substantial raising of the gas tax, or maybe a reappropriation to use on renewable fuel infrastructure?
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pdx 11:56AM (3/07/2007)
Gas taxes do need to be raised, as they have been stagnant in many ways and in many states for years. But that is only to facilitate maintenance of the infrastructure.
However - a higher gas tax disproportionately affects the poor.
I think we need a combination.
1. Increase CAFE standards and do it for ALL vehicles, no exceptions anymore. There is no reason why we can't make SUVs more efficient too.
2. Increase fuel taxes moderately. The cost of maintaining roads has gone up, but revenues have not. This also gives incentives to buy more fuel efficient vehicles.
3. Have hefty (large) gas guzzling taxes on *new* vehicles (vehicles less that a certain age, 5 years?) at the time of sale. This means the people that have the money to buy the big wasteful vehicles will pay the extra, yet the lower income people are not as penalized on regular cars.
4. Have moderate gas guzzling taxes on annual registrations for the life of the car. No exemptions. If your 1973 Oldsmobile still only gets 8mpg, you pay a gas guzzler tax. This not only encourages people to use newer cleaner more efficient cars, but allows people who want to collect or use larger vehicles to pay the costs associated with such. If you can afford to drive an Escalade you can afford to pay the costs associated with doing so.
I think that puts the largest burden on the people who can afford to buy the large expensive vehicles, while still encouraging everyone to buy more efficient cars, and encouraging manufacturers to produce more efficient vehicles.
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charlie 12:13PM (3/07/2007)
Do you guys know that we already have pretty high gas taxes in america? I mean not nearly as high as europe, but the unweighted average of total state and federal excise taxes on gasoline is $.42/gallon. The weighted average would be even higher since the more populous states tend to have the higher tax rates, and, for example, Alaska has the lowest.
I'm all for making people pay for the true cost of what they're using- its simply good economics. An example of something I would support would be making all highways in america tollroads. You're using roads that are extremely expensive to build and maintain, you should be paying a representative proportion of their costs.
Another good idea (after making all major highways tollroads with rates high enough to support the highway system) would be to eliminate the existing excise taxes on gasoline, and instead mandate that gasoline retailers have to own sufficient carbon sequestration assets for all the gas they sell. For example, buying forests in south america, africa, etc. This type of legislation would have great impact- prices of gasoline would accurately reflect the cost of global resources that are being used, and natural resources that help absorb carbon (such as South American rainforests) would be more protected from logging and development than they are now. Much more elegant than raising gasoline taxes.
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charlie 12:13PM (3/07/2007)
Of course, all of this talk of gasoline taxes, highway tolls, etc, is just attacking the symptom of high energy use for transportation. The "disease", if you will, is how america has developed a system of everyone moving out to the suburbs, requiring many to spend an hour or more in their car each way to and from work. We can change our tax structure to encourage more people to live in more densely populated areas, which would decrease the distance they need to move to get to work and often make mass transit cost efficient.
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Rob 3:49PM (3/13/2007)
Quote from 8: "We can change our tax structure to encourage more people to live in more densely populated areas, which would decrease the distance they need to move to get to work and often make mass transit cost efficient."
Right, because we all wanna live shoulder to shoulder in a city as opposed to having a little bit of land outside of the city. Dumbest idea I have ever read.
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Tormod Henne 1:47PM (3/07/2007)
Annual gas guzzler tax is not fair because if you own a big old car does not mean you are using a lot of gas. Elderly people who go for groceries once a week or collectors who drive to a show once a year are not the major players here but they will be taxed same amount as a daily commuter. All tax should be at the pump where the volume of fossil fuel is measured.
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Mike Z 3:21PM (3/07/2007)
I'm sad to be the sole Libertarian/Free Market Republican in the group, but what right does the Gov't have to change the lifestyle we choose to pursue?
If this truly was a democracy, shouldn't the idea of the government meddling in the choices of its citizens fundamentally be oxymoron?
Government should tax gas enough to build a good road system and other related expenses and stay out of the people's business with regard to which car they choose to drive.
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Rick Lyon 4:21PM (3/07/2007)
Yea, because current gas prices and their strangle hold on the lower middle and lower class aren't having a negative affect on the economy and personal savings, spending and debt enough.
What horse sh**. THey need to LOWER THE FREAKING GAS tax and RAISE MPG standards. Oh yea, that's the first Clinton bill Bush killed when he took over office.
How about gas guzzler tax? If your vehicle SUCKS on gas, then, bamm, $5k in additional taxes. If you can afford the $30K+ SUV that sucks on gas you can afford the tax more then the struggling classes and small families barely getting by with current oil/gas prices.
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charlie 4:21PM (3/07/2007)
"Right, because we all wanna live shoulder to shoulder in a city as opposed to having a little bit of land outside of the city. Dumbest idea I have ever read."
If it is, its only because you don't have even the most basic understanding of economics or physics.
There is a certain minimum amount of energy needed to move a person/family/their shit from place to place. There is no getting around this. People buy SUVs/minivans because of their marginal utility over smaller cars. Even full size sedans, much less the tiny european and asian subcompacts that many people on this site advocate, are useless for running carpools, moving an appliance/furniture/etc, or taking extended roadtrips with a 4 or 5 person family comfortably. Energy prices are low enough right now (and probably will be far into the future) that the marginal energy costs are outweighed by the usefulness of the added space, even if its only really being used maybe 30 days out of the year.
When people live in more urban areas, they have to move a shorter distance to get to work/school. they have to move a shorter distance to go to stores. They have to move a shorter distance to get to entertainment. Also, on the business side, goods have to travel less distance to get to the places they need to be. For example, a Fedex truck in NYC is going to use fewer gallons of gas per package delivered than a rural one.
Now I'm far from saying that we should mandate that everyone live in a city. But at the very minimum we should end government practices that ENCOURAGE sprawl. For example, the government provides free road access, even when traveling on the road has a real cost. The government allows you to write off interest on your mortgage. The government allows married couples to not pay taxes on up to $500,000 in capital gains on their house every two years. And theres probably the biggest factor, since the biggest reason for people to move out to suburbs is the public schools: our public school system encourages people to flee urban areas so their kids dont have to go to school with kids they dont want them to go to school with.
Heres an example: I live in Illinois in a north shore suburb of chicago. People move to the north shore suburbs for the prestigious public schools. Public schools in Chicago are terrible, and the prestigious private schools have tuitions reaching to $40,000/year per child. If the federal, illinois state, and City of Chicago governments decided to give every child a voucher for the amount of money that they would otherwise have given directly to public schools, many more people would live in the city. People would be able to afford to send their kids to the private schools of their choice, and wouldnt have many reasons to want to live in the suburbs. Fuel consumption in Illinois would decrease more so than any conceivable environmental law could cause.
Thats how you attack the disease, and not the symptom. Everything else is a band-aid and tylenol.
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Rob 4:58PM (3/07/2007)
Site Admin: My bad on the double post.
OK Charlie... So basically what your saying is that if I live only one block away from the mall as opposed to someone else who lives 2 blocks away from the mall, I'm going to use less energy to get to the mall than they are. Thanks for pointing that out.
Since when have road's been free? Last I checked, I pay Michigan state taxes, sales taxes, gas taxes at the pump, and numerous other taxes that go to pay for road construction and maintenance. Please explain the free road thing to me at the minimum even if you don't respond to anything else. I'm curious to read your reasoning on how roads are "free."
Another thing, schools are not even close to the only reason alot of people tend to live outside of densely populated urban areas. The reason I live 35 miles from work is because I, and my wife, like the peace and quiet, for the most part, that comes with not living so close to Detroit.
The fact is, anyone who wants to live 100 miles from work should be able to do so freely with no super special tax being levied against them for doing so. Sad truth is, by someone living so far away, their probably helping the state more than someone who lives say, in the city, by paying more in gas taxes. Take me for instance. I drive a Tahoe. Gets about 12 to 14 MPG (I know it sucks on gas so save me the lecture but I like to be able to pull my ATV's and snowmobiles up north. If they make an electric vehicle that can pull a couple of tons and that is priced reasonably, I'll be the first one to buy it). Multiply atleast 70 miles a day times 5 days a week. Don't even include weekends. Look at my contribution as opposed to the "average" person's contribution to the state budget when it comes to revenue from gas taxes. I am very much paying for the privelege of living outside of the city.
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charlie 5:32PM (3/07/2007)
"OK Charlie... So basically what your saying is that if I live only one block away from the mall as opposed to someone else who lives 2 blocks away from the mall, I'm going to use less energy to get to the mall than they are. Thanks for pointing that out."
Right. i dont understand the need for sarcasm. I drive 5 to 30 minutes to get to all the shopping and entertainment venues I use in the suburbs. My sister in law in the city is walking distance from her office, her gym, Michigan Avenue and any type of store or food she could desire. Even more is opened up to her with the public transportation system. Practically the only time she ever drives her car is the 2 or 3 times a week she comes out to the burbs to see us.
"Since when have road's been free? Last I checked, I pay Michigan state taxes, sales taxes, gas taxes at the pump, and numerous other taxes that go to pay for road construction and maintenance. Please explain the free road thing to me at the minimum even if you don't respond to anything else. I'm curious to read your reasoning on how roads are "free."
I shouldnt have said "free", you're right, they do get paid for eventually through a variety of funds. What I mean is that users arent charged proportionally for their use. For people to use roads in an economically efficient manner, they should be charged proportional to the cost of the roads. They arent. Gas taxes are kinda close, but arent as obviously connected. Basically, I'm talking about putting tolls on all major highways, and paying for ALL costs of those highways JUST with those tolls.
"Another thing, schools are not even close to the only reason alot of people tend to live outside of densely populated urban areas. The reason I live 35 miles from work is because I, and my wife, like the peace and quiet, for the most part, that comes with not living so close to Detroit."
Detroit is a tough example for a variety of reasons... you know what I'm talking about. But can you really deny that schools arent a HUGE part of it? And I'm not saying that everyone should live in something like the most densely populated areas of the largest cities. But if we could do something little that would encourage maybe 10% of americans that currently live in suburbia, a drive away from everything, to somewhere where you could walk or efficiently take mass transit to a variety of places of work, shopping, and entertainment, we would do more to decrease energy consumption than pretty much anything else.
"The fact is, anyone who wants to live 100 miles from work should be able to do so freely with no super special tax being levied against them for doing so."
I agree 100%. I consider myself libertarian. I just see it a different way: "the government shouldnt be in the business of using its regulations and taxes to ENCOURAGE people to move out of cities".
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frank78 9:53PM (3/07/2007)
Mike Z!!!
Believe me, you're not the only Libertarian here. My favorite latest quote is: 'The welfare of humanity is the alibi of tyrants.'
The free market will do a much better job than any govt mandated CAFE standards. I already see alot of smaller new cars on the roads. Political influence into tha marketplace equals a suppressed economy. Read some history books and look at the world and you can see that.
I think it's hilarious that some of you guys wish to essentially have higher road taxes on people who have higher incomes. Hilarious isn't the best word. Disgust and fear that you guys probably vote. Now call me crazy, but if someone who makes $30,000 a year is using the same roads as someone making $70,000 per year, why the govt. forced inequity if the higher income earner drives a car that gets worse MPG??? The higher income earner
is already having to buy alot more gasoline to go the same distance, so they are paying more taxes already (and I hate SUVs by the way, I have a 35 MPG car) while using the same road. A further tax is unneccessary and damn borderline communist.
By saying we need a 'gas guzzler' tax you are proposing more socialism than is already present with the income tax system. I thought this was "land of the free and home of the brave" not "home of the ignorant, fearful looking for a free ride."
The economic and historical ignorance of people never ceases to amaze me.
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MikeW 11:55PM (3/07/2007)
What percentage of the vehicle fleet has a 6 speed automatic or better?
How much gas is wasted via torque converters that don't lock-up [partially or fully] below 40mph, too much.
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Ken 7:24AM (3/08/2007)
I can't believe some of the recomendations put forth here. Last I checked it was a privledge to operate a motorvehicle, not a right, so anythings impact on people of different economic classes isn't terribly relavent when it comes to vehicle operation. That being said wouldn't a continuous gas guzzler tax hurt these lower income brackets worse? I know my first vehicle was a mid 70s pickup with a V8 and automatic transmission that only got 14-18mpg. Had there been a $5K tax on my $1K truck I wouldn't have been able to afford it. When gas got more expensive (over $1.50 a gallon) I simply drove less. Seemed like the perfect capitalist solution to me. I made the 1/2mile walk to school and the slightly longer walk to work, got rides with friends with more effecient cars to other places, and genrally wasn't bothered by gas prices, just had to be smart about it. Now that I own my MINI I care even less about gas prices, seeing that I spend more a week washing it than putting gas in it. The people that suggest encouraging people to move more towards the city centers to reduce the fuel used to commute are on the right track, although still thinking backwards. People will still want the added peace and quiet of the suburbs and will want to live closer to the prestigious schools they're sending their children to. Giving them a commute to work of a couple of blocks does no good it they now twice a day have to drive to the suburbs and back to drop-off and pick up their children. Why not offer tax cuts to businesses that encourage their employees to telecommute? The businesses will like the added profits the break would give, people would have no commute to work in the mornings and thus have a higher net income not having to spend money to get to and from work. Increase the gas tax slightly if it's needed to help cover the exenses of road construction and repair, otherwise look towards making people want to do what's better for the environment with a carrot rather than a stick. People in service jobs who need to interact directly with customers will still need to come into work but with the reduced congestion on the roads created by eleminating the other office workers they'll save money by being in traffic less and having shorter commutes as well.
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akatsuki 11:05AM (3/08/2007)
The fact is that taxes and costs always affect the poor more than the rich, just as higher cafe standards will make cars more expensive. A higher gas tax has a lot of advantages: it doesn't incentivize keeping your old car because new ones are more expensive, it gives people choice regarding their vehicle, it avoids the cutoffs and problems with gas guzzler taxes, and it appropriately punished those who drive the most and use the least fuel-efficient vehicles. It also aids local producers as transport costs increase, giving local makers a price advantage. I would really have no problem with a rather large gas tax.
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