Tuesday, January 13, 2015

Charles Krauthammer: Raise the Gas tax but make it revenue neutral.

With Senator Bob Corker and others talking about the need to increase the national sales tax on gasoline and Governor Haslam talking about raising the state tax on gas, as expected there has been a storm of protest from conservatives who think we are taxed enough already and never want a tax increase anywhere at any time on anything.

I have for a long time advocated a revenue-neutral carbon tax. The key term however is "revenue-neutral." One reason for advocating such is that I accept the prevailing scientific theory of global warming and I think it wise to curtail carbon production. Since gas for automobiles is a major source of carbon pollution, then a tax on gas is about the same thing as a tax on carbon.  Also I want to curtail urban sprawl and if gas cost more instead of less, people are more inclined to live closer to where they work and go rather than further away.  Also, if our roads and bridges are to be maintained from the tax on gasoline rather than general revenue, then the current gas tax is insufficient.

Another reason to favor curtailing gas consumption is a national security concern. Saudi Arabia finances the spread of Wahhabi Islam primarily by money earned from Americans driving gas-guzzling cars. While we fight radical Islam on the one hand, we fund it every time we fill up our cars.

I do not see how any conservative can take a principled stand against a shifting of taxes from one source to another if the shift will result in a positive change in incentives.  I think all of us who are not economics deniers recognized that if you subsidize something you get more of it and if you tax it you get less of it, so why would one oppose a reduction in a tax on income to be replaced by a tax on gas?

I was pleased to see one of the political thinkers whom I most admire make the case for a revenue-neutral gas tax in a recent syndicated column. Charles Krauthammer writes, "For 32 years I’ve been advocating a major tax on petroleum." I urge you to read his thoughtful essay.

Krauthammer's proposal is to cut the Social Security tax and make up the revenue by taxing gas. He says his proposal, "is not to feed the maw of a government raking in $3 trillion a year. The point is exclusively to alter incentives — to reduce the disincentive for work (the Social Security tax) and to increase the disincentive to consume gasoline."

"Employment taxes are a drag on job creation. Reducing them not only promotes growth but advances fairness, FICA being a regressive tax that hits the middle and working classes far more than the rich," he writes.

"A high gas tax encourages demand for more fuel-efficient vehicles," he says. "Constrained U.S. consumption — combined with already huge increases in U.S. production — would continue to apply enormous downward pressure on oil prices." He says a gas consumption tax would constrain consumption much more effectively than CAFE standards.

Krathammer also says, "lower consumption reduces pollution and greenhouse gases."  I know many conservatives think "greenhouse gases" are nothing to be concerned about but I agree with Krahammer and most scientist who think that they are.

While I agree with the logic of Krathammer as far as it goes, I am concerned however about what will happen to Social Security if funding is taken away from it, in order to make a gas tax revenue-neutral.  From Krathammer's essay, I assume he advocates that the money raised from a gas tax should replace revenue taken from social security but he does not explicitly say such.

FICA taxes have always been the funding source of Social Security benefits and thereby led many to think of Social Security as an insurance program rather than a government scheme of transfer payments. To fund Social Security from a source other than the FICA tax would be a radical departure, but not one I would oppose. If that is what he advocates, then his proposal does not worsen the funding crisis facing social security but we are still left with the issue of how we will repair roads and rebuild old bridges.

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