From: TaxVox a tax blog from the Tax Policy Center of the Urban Institute and Brookings Institution
Gas Prices Are Too Low
Posted on March 13, 2012, 3:47 pm
GOP presidential candidates are blasting President Obama for not lowering the price of gasoline. Rep. Steve Scalise (R-LA) doesn’t stop there. He claims Obama is deliberately driving prices to $4 a gallon.
He’s not. But he should.
In an election year, Obama may be the last guy who wants gas prices to rise. However, if we want to reduce our need for foreign oil, slow climate change (yes, Virginia, the planet is warming), and encourage development of new energy technology, we ought to be raising taxes on fossil fuels. A lot.
I know that this sounds like elitist left-wing heresy. But in the dim past (2008), GOP presidential candidate John McCain embraced the system known as cap-and-trade, which was effectively a tax on carbon-based fuels. Greg Mankiw, a former top economic aide to President George W. Bush and now an adviser to Mitt Romney, says its reasonable to boost the 18.4 cent a gallon tax to $2. As Mankiw recently wrote, “by taxing bad things more, we could tax good things less.”
Newt Gingrich used to support cap-and-trade. So did both presidents Bush. As governor of Massachusetts, Mitt Romney initially backed the idea though he eventually abandoned it.
Carbon taxes, in any form, have become exceedingly politically incorrect. But they were a good idea when McCain and Gingrich supported them. And they still are.
Sensible energy policy goes beyond just taxing fossil fuels. It also means dumping competing subsidies for oil and gas on one hand and alternative energy on the other. As it is, these tax preferences reflect a policy chasing its own tail: Congress first subsidizes fossil fuels. Then, in an effort to make alternatives cost competitive, it subsidizes windmills, solar panels, and the like. When all is said and done, the relative cost may not change very much but the deficit does. And not in a good way.
Ditching all these tax subsidies would have two other advantages.
It would allow government to eliminate mandates and other regulations that would be unnecessary in a well-functioning energy marketplace. For instance, there would be no need for complex, costly, and easily manipulated fuel economy standards. The high price of gasoline alone would encourage many consumers to buy fuel efficient cars instead of gas-guzzlers.
As Ted Gayer, co-director of the Brookings Institution’s economic studies program, notes, higher prices for fossil fuels also would get government out of the business of providing grants and other direct assistance to favored industries or businesses. The Solyndra mess is strong evidence of what goes wrong when government tries to pick winners and losers.
The left often complains that carbon taxes are regressive. And so they are. But a well-designed tax (or cap and trade program) can generate enough revenue so some could be used to assist low income households.
Interestingly, carbon taxes enjoy the support of nearly all mainstream economists, regardless of ideology. But most Americans, who seemingly love their cars more than their spouses, are unconvinced. For them, fuel, like healthcare, ought to be plentiful and cheap.
As Gayer writes, the next administration will have a chance to consider a carbon tax, perhaps in the context of broad-based tax reform.
He might be right. But, first, politicians of both parties are going to have to stop their pandering.