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December 27, 2008

Krauthammer Proposes a Gas Tax

Charles Krauthammer has the cover article in the upcoming Weekly Standard. He suggests that the extreme oil price collapse presents a "once in a generation" chance to impose a gas tax.

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.

To Krauthammer the benefits of a gas tax are "blindingly obvious" and include things like putting pressure on OPEC, and crippling the economies of Russia, Venezuela, and Iran. He notes that high gas prices also encourage fuel economy and reduce pollution.

I'm still mulling this over, but my first instinct is that this is a bad idea. Krauthammer acknowledges that the program will need a yearly adjustment to match the FICA rebate-that's-not-really-a-rebate with (assumed) falling average gasoline consumption. In other words, it will require Congress or an executive body to act every year.

More than that, what reason do we have to believe that if we give our assent to this now, future Congresses will keep the gas tax linked to a FICA rebate? I suspect that once acclimated to a gas tax, Congress will go right on upping payroll taxes--especially since a Social Security emergency is hanging over our heads. In fact, Congress can announce it's annual FICA gas-tax rebate and in the next breath regretfully pass a "planned increase" in payroll taxes to combat a shortfall in revenue. Money is fungible.

Also, Krauthammer's tax is focused on individual drivers. He spends one paragraph noting that special cases like truck drivers and others who drive long distances might need their own separate program for relief with a "small bureaucracy" to handle the paperwork. On the one hand, we might largely avoid that problem by exempting diesel from the proposed tax. If we don't make such an exemption (as Krauthammer seems to imply), anything that is shipped by truck will see a corresponding increase in price. Reducing the driver's FICA tax isn't going to help the rest of us with that.

In short, Krauthammer's net-zero gas tax is setting off warning bells. Click over and read the whole thing. It's long, but worth some consideration. What do you think about it?


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posted by Gabriel Malor at 12:13 PM

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