Tuesday, December 30, 2008

The Krauthammer option; now more than ever‏

Time to make you fine, loyal, and wise readers mad at me again.

I never ask that you need to agree with me; just ponder some of what I am pondering.
Americans have a deep and understandable aversion to gasoline taxes. In a culture more single-mindedly devoted to individual freedom than any other, tampering with access to the open road is met with visceral opposition. That's why earnest efforts to alter American driving habits take the form of regulation of the auto companies--the better to hide the hand of government and protect politicians from the inevitable popular backlash.

But it's not just love of the car. America is a nation of continental expanses. Distances between population centers can be vast. The mass-transit mini-car culture of Europe just doesn't work in big sky country.

This combination of geography and romance is the principal reason gas taxes are so astonishingly low in America. The federal tax is 18.4 cents per gallon. In Britain, as in much of Europe, the tax approaches $4 per gallon--more than 20 times the federal levy here.

...the virtues of a gas tax remain what they have always been. A tax that suppresses U.S. gas consumption can have a major effect on reducing world oil prices. And the benefits of low world oil prices are obvious: They put tremendous pressure on OPEC, as evidenced by its disarray during the current collapse; they deal serious economic damage to energy-exporting geopolitical adversaries such as Russia, Venezuela, and Iran; and they reduce the enormous U.S. imbalance of oil trade which last year alone diverted a quarter of $1 trillion abroad. Furthermore, a reduction in U.S. demand alters the balance of power between producer and consumer, making us less dependent on oil exporters. It begins weaning us off foreign oil, and, if combined with nuclear power and renewed U.S. oil and gas drilling, puts us on the road to energy independence.
Today we are experiencing a unique moment. Oil prices are in a historic free fall from a peak of $147 a barrel to $39 today. In July, U.S. gasoline was selling for $4.11 a gallon. It now sells for $1.65. With $4 gas still fresh in our memories, the psychological impact of a tax that boosts the pump price to near $3 would be far less than at any point in decades. Indeed, an immediate $1 tax would still leave the price more than one-third below its July peak.

What to do? Something radically new. A net-zero gas tax. Not a freestanding gas tax but a swap that couples the tax with an equal payroll tax reduction. A two-part solution that yields the government no net increase in revenue and, more importantly--that is why this proposal is different from others--immediately renders the average gasoline consumer financially whole.

Here is how it works. The simultaneous enactment of two measures: A $1 increase in the federal gasoline tax--together with an immediate $14 a week reduction of the FICA tax. Indeed, that reduction in payroll tax should go into effect the preceding week, so that the upside of the swap (the cash from the payroll tax rebate) is in hand even before the downside (the tax) kicks in.

The math is simple. The average American buys roughly 14 gallons of gasoline a week. The $1 gas tax takes $14 out of his pocket. The reduction in payroll tax puts it right back. The average driver comes out even, and the government makes nothing on the transaction. (There are, of course, more drivers than workers--203 million vs. 163 million. The 10 million unemployed would receive the extra $14 in their unemployment insurance checks. And the elderly who drive--there are 30 million licensed drivers over 65--would receive it with their Social Security payments.)

Revenue neutrality is essential. No money is taken out of the economy. Washington doesn't get fatter. Nor does it get leaner. It is simply a transfer agent moving money from one activity (gasoline purchasing) to another (employment) with zero net revenue for the government.
.... and we need to cut diesel tax by a half to help bring our auto diesel usage in line with Europe's ~30-50%. Diesel gets ~25-30% better mileage and is easily mixed with biodiesel where it makes sense, etc. We aren't talking about a 1978 GM diesel either. Modern diesels are outstanding engines. Next time you are in Europe, rent a VW turbo diesel and you will know what I am talking about.

Less money in the pockets of the Saudis and Hugo - and will take a huge chunk out of our crippling trade deficit etc, etc, etc.

Win, win, and win.

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