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Charles Krauthammer: Increase gas tax, reduce Social Security tax

The only time you can even think of proposing a gas tax increase is when oil prices are at rock bottom.
The only time you can even think of proposing a gas tax increase is when oil prices are at rock bottom.

For 32 years I’ve been advocating a major tax on petroleum. I’ve got as much chance this time around as did Don Quixote with windmills. But I shall tilt my lance once more.

The only time you can even think of proposing a gas tax increase is when oil prices are at rock bottom. When I last suggested the idea six years ago, oil was selling at $40 a barrel. It eventually rose back to $110. It’s now about $48.

As a result, some in Congress are talking about a 10- or 20-cent hike in the federal tax to use for infrastructure spending. Right idea, wrong policy. The hike should not be 10 cents but $1. And the proceeds should not be spent by, or even entrusted to, the government. They should be immediately and entirely returned to the consumer by means of a cut in the Social Security tax.

The average American buys about 12 gallons of gas a week. Washington would be soaking him for $12 in extra taxes. Washington should, therefore, simultaneously reduce everyone’s Federal Insurance Contributions Act tax by $12 a week. Thus, the average driver is left harmless. He receives a $12-per-week FICA bonus that he can spend on gasoline if he wants – or anything else. If he chooses to drive less, it puts money in his pocket. (The unemployed would have the $12 added to their unemployment insurance; the elderly, added to their Social Security check.)

The point of the $1 gas tax increase 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.

A $1 gas tax increase would constrain oil consumption in two ways. In the short run, by curbing driving. In the long run, by altering car-buying habits. A high gas tax encourages demand for more fuel-efficient vehicles. Constrained U.S. consumption – combined with already huge increases in U.S. production – would continue to apply enormous downward pressure on oil prices.

A tax is the best way to improve fuel efficiency. Today we do it through rigid regulations, the so-called Corporate Average Fuel Economy standards imposed on carmakers. They are forced to manufacture acres of unsellable cars in order to meet an arbitrary, bureaucratic “fleet” gas-consumption average.

This is nuts. If you simply set a higher price point for gasoline, buyers will do the sorting on their own, choosing fuel efficiency just as they do when the world price is high. The beauty of the tax – as a substitute for a high world price – is that the incentive for fuel efficiency remains, but the extra money collected at the pump goes right back into the U.S. economy (and to the citizenry through the revenue-neutral FICA rebate) instead of being shipped overseas to Russia, Venezuela, Iran and other unsavories.

And finally, lower consumption reduces pollution and greenhouse gases. The reduction of traditional pollutants, though relatively minor, is an undeniable gain. And even for global warming skeptics, there’s no reason not to welcome a benign measure that induces prudential reductions in carbon dioxide emissions.

The unexpected and unpredicted collapse of oil prices gives us a unique opportunity to maintain our good luck through a simple, revenue-neutral measure to help prevent the perennial price spikes that follow the fool’s paradise of ultracheap oil.

Charles Krauthammer is a columnist with the Washington Post Writers Group.

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