Monday, December 29, 2008

Baptists and Bootleggers and the Gas Tax

I always worry when elites on both sides of an issue agree. And worry turns into terror when it's two complete opposites like the editorial page of the New York Times and the friggin Wall Street Journal's auto reporter both think we should increase taxes. I mean from the Times calls for tax increases are like restaurant reviews - they appear almost daily. But from the WSJ's guy in Detroit? What's going on?

Bruce Yandle, an economist who used to teach at Clemson, coined this awesome phrase, baptists and bootleggers, to describe the unusual, and unlikely political alliance that maintained blue laws (the prohibitions on alcohol sales on Sunday) in the South. Both groups were opposed to each other publicly, but on this one issue their interests converged. And the South kept Blue Laws in place.

We're seeing a classic example of this phenomenon right now with the gas tax. There is this growing consensus among elites that a gas tax is a nice behavioral modification device - sort of like this one. It's based on the seat-belt laws/cigarette tax argument and freaks me out because everything I read about it seems to suggest these folks know what's good for me.

This particular confluence of arrogance has brought together at least four groups I can see. The first one is obvious - environmentalists and coastal liberals who are not as dependent on automobiles as the rest of the country. Hard core folks like these just believe we should be driving Prius' or walking. The second are Neo-Cons who say Arabs in general are bad and by cutting our dependency we'll improve our national security concerns. However when I see simple statistical analysis from the U.S. Department of Energy like this that shows we are more dependent on Canada than Saudi Arabia for oil it makes me wonder why we want to destabilize Quebec.

Third are the boys from Detroit who would probably trade a gas tax for the elimination of CAFE standards for a gas tax in a second - especially if it involved a deal for government cash. Finally, fourth are politicians who are saying something like "Look at all the money that a gas tax would make!"

We know what Candidate Obama said about a gas tax holiday during the election, and it suggests that he is not an avid opponent of it.

It would be a good bone to throw to environmentalists, and if it were linked to the elimination of CAFE standards, Detroit would probably get behind it, but what would it mean? Well part of it would depend on the rate, and a huge part of it depends on the impact on behavior.

Cost during a recession? Not as much as you'd think with declining gas prices and decreasing use of cars, so it has short term appeal as well, especially if it's sold as a way to "pay for" the 2 trillion or so we are going to spend next year on fiscal stimulus............2 trillion............WOW.

My concerns are four fold. First, as Krauthammer argues, it should come as a revenue neutral proposal. I just don't believe that will come through the sausage making machine. I also really, really, really doubt that Neo-Cons understand the economics of tax increases.

Second, this pretty smart guy argued that we have to be aware of unintended consequences of government action. That always sits in the back of my mind when I hear people with Ivy League educations explaining to me how public policy x will only lead to outcome y that they have predicted. It never seems to work that way. This is a good example of that.

Third, any tax increase spreads price increases throughout an economy. Milk, eggs, and Wii's don't get delivered by mules - they get delivered using trucks and trucks use fuel. And some trucks don't use get the idea.

Finally, fourth is it not the case that real estate market is in the dumps? How does punishing folks who have to drive a lot influence all the excess housing in suburban areas like FL and CA? How willing are both parties to screw the developers stuck with excess housing in Ex-burbs?


  1. ok Fundman, you got me riled up enough to respond on this one because I think a significantly higher gas tax would be a great thing on a number of levels. First of all, on the behavior-modification side, I think anything that encourages fat/dumb/happy Americans to drive more appropriate vehicles is a good thing. A building contractor needs a Tahoe, but why does a soccer mom need a 5000lb 4x4 to get Buffy and Skip out of the subdivision to the mall? Yes, it may be her decision but it DOES affect me too:
    1)SUVs are dangerous to everyone else on the road because they don't stop or turn, can't avoid accidents
    2) they block my vision
    3) they aren't engineered to absorb energy in a crash, so again they hurt others (without providing any additional protection to their occupants
    4) they pollute more than a car does

    Now that I have that off my chest, let me get to the other reasons I support an increased gas tax. First, we need to invest more in our roads and bridges, and I think a gas tax is the best balance of assigning the cost burden to the appropriate users while not introducing other inefficiencies in the collection process (like toll booths).

    Here's the real kicker though. I read in a Chicago Tribune article about a year ago that if you really look at the cost providing a gallon of gas in the US, there is an enormous component of that which never gets passed on to the users. The true cost of a gallon of gas in the US would be north of $10 if you included everything the govt spends on ensuring a reliable supply of oil (especially from the middle east). But that cost doesn't get passed on to the people using the gets paid by my income tax (and my kids' future taxes given our defecit spending). In effect, high earners are subsidizing the price of gas for high users. I think that's wrong - let the Tahoe drivers pay the true cost of the gas they burn. This piece should be revenue-neutral...drop the income tax by the same amount that we raise the gas tax. And while we're at it, drop the stupid CAFE requirements - it's like trying to force someone to lose weight by forcing JCPenney to sell a certain portion of skinny clothes...if you really want to encourage people to lose weight (not saying you should), then put a tax on Cheeto's.

    Just one guy's opinion.

  2. Freddie - tell me what you really think. Seriously, open up Man.

    So as I read your comment it's basically two broad points. The first is that you don't like SUV's because they are dangerous and not useful to many of their current owners. Your second point is about having users pay the "true" cost of their driving with a gas tax.

    We have lots of evidence that raising operating costs changes preferences away from SUV's, cigarettes, booze, but perhaps not foie gras. I suspect that you will not have to worry as much about SUV's in the next few years, but that was going to change with rising fuel prices before a tax.

    Two your second point, in a perfect world the users should absolutely pay for the costs of their use. But I have two broad concerns with this particular path of user charging. First, are taxes, which go into general funds, going to help pay for those costs? No. If they are earmarked will it help? Yes, but budgeting is such that is simply diverts other revenue flows into politicians hands and makes me VERY nervous because it's more cash they can use to pay off supporters. Toll pricing is a more efficient method of accomplishing this in my view as long as the money goes into an agency that handles roads exclusively.

    However more generally, do we equally distribute the costs of activities to users in our society? Do we get as much out of government spending as we put in? You and I both are getting ripped off, badly, by Social Security, for example. If we are going to move towards a system of more equality, sign me up, but I see loads of examples where that doesn't occur. So I guess instead of starting with a gas tax, I'd start with asking homeowners to give up their interest and property tax deductions or the elderly give up Social Security. Then let's sit down and ask how much redistribution or churning really exists before we start going after one group of people.

    Remember, these effects are highly regional. And of course the cost of imposing higher gas prices in society, along with printing hordes of cash leads me to worry about inflation.

    One more short point, depending on which think tank you ask, the "true" cost of driving is a matter of some dispute. Right wing tanks put the figure much lower than left-wing ones.