The Prius and the olive tree.

Commentary about business and finance.
May 27 2004 4:10 PM

The Prius and the Olive Tree

Why are conservatives supporting higher gas taxes?

University of Chicago economists—especially Nobel Prize-winning ones—rarely argue that the government should sharply raise taxes, intervene directly in global free markets, and choose winners among industries. But that's precisely what Nobel laureate Gary Becker did in his recent Business Week column. Becker suggested the U.S. government impose an additional 50-cent-per-gallon federal gas tax and use the proceeds to expand federal gas reserves. He also suggested that the feds start subsidizing "cleaner and more promising technology."

In years past, the center-right, free-market consensus would have responded to such calls by lecturing us about the evils of regressive taxes, and—worse!—industrial policy. But now that the global free market has pushed gas prices higher, and now that we're buying it more from Saudis and less from Texans, many free-marketeers seem to have changed their minds.

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Some in the neo-conservative camp view a higher gas tax as a great way to stick it to the Saudis and other Arab governments hostile to the United States—not to mention those pesky Venezuelans. "If Bush had the nerve to tax imports, motorists' dollars would flow into the U.S., rather than into OPEC treasuries," Irwin Stelzer of the Weekly Standard, wrote earlier this week. Charles Krauthammer last week argued that the government should tax gas to $3 a gallon to help ourselves and hurt the Saudis and other undesirables. The high prices would also force American drivers "to once again start demanding and buying lighter and more fuel-efficient cars—exactly as they did in the late '70s and early '80s." (This is quite possibly the first instance of op-ed nostalgia for that halcyon era of stagflation.)

Plenty of non-neo-cons are echoing the call for higher gasoline levies. Nondriving, but conservative, blogger Andrew Sullivan has been beating the drum for higher gas taxes for weeks. Thomas Friedman, the naive globalist turned folksy realist, now seems to be advocating "The Prius and the Olive Tree." In today's New York Times column, he calls for free parking for hybrids and a 50 cent gas tax to fund a "Manhattan project to speed the development of a hydrogen economy."

And in arguing for a 50-cent gas tax in the New York Times last Sunday, Gregg Easterbrook imagined an alternate history. If the government had the foresight to enact such a tax in the 1990s "the S.U.V. and pickup-truck crazes would not have occurred, or at least these vehicles would be much less popular; highway deaths would have been fewer; and gasoline demands would be lower as would oil imports … fewer dollars would have flowed to the oil sheiks; and the trade deficit balance for the United States would be smaller." (Yes, and perhaps the Boston Red Sox would have won the World Series four times and the Dow would be at 36,000. As a lapsed history graduate student, I have long since learned that the proper response to a historical counterfactual argument is always: maybe, but also maybe not.)

Wouldn't an extra 50-cent-per-gallon gas tax, which would essentially raise the price of gas 25 percent, be economically destructive, as Bush campaign surrogates routinely argue? (See here, here, and here.) After all, gas taxes are regressive ones that fall disproportionately on poor people, many of whom have to drive great distances to work. Truckers would either pass the costs along in the form of higher prices, thus triggering inflation, or eat the profits and hence harm their owners and employees. (Just think what it would do to long-suffering convenience store owners.)

Both Easterbrook and Krauthammer say the cash raised from a gas tax could be used to reduce payroll or income taxes. But if you're not really raising taxes in the aggregate, then it's less likely to have an immediate impact on consumers. Many of the extra dollars you'd get in your paycheck would get spent at the pump.

The irony is that the free market forces that many of these writers normally extol are actually working. Americans are buying more Priuses and fewer Hummers. Ford is rushing a hybrid SUV into production. Car-buyers need to be bribed to purchase gas guzzlers. The Wall Street Journal reported today that U.S. automakers have jacked up SUV rebates by an average of 17 percent from last year. Givebacks on tanks like the Cadillac Escalade and Lincoln Navigator are up 50 percent.

There's something whimsical about all the higher-gas-taxes proposals. It's the middle of campaign season. Among the people who could actually enact a new gas tax—the hard-core partisan Republicans who control Congress and the White House—any increase is strictly verboten. After all, higher gas taxes would have a comparatively small impact on the wealthy Democratic states whose residents use mass transit—like New York, New Jersey, Maryland, and Connecticut. And it would have a huge impact on low-income battleground states with wide-open spaces, like New Mexico and Nevada. Perhaps that's why Gregory Mankiw, chairman of President Bush's council of economic advisers, who, as Easterbrook noted, advocated a 50-cent-per-gallon increase back in 1999, has stowed that idea safely at the White House's intellectual coat check.

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