Syndicated columnist Charles Krauthammer has endorsed a gax tax as a tool for reducing U.S. demand for petroleum, and thus the world price. He is “agnostic” about the threat posed by anthropogenic global climate, but hardly so with respect to the perils of transferring great wealth to regimes that are opponents or sworn enemies.
Krauthammer insists that such a gas tax be a “net zero” tax, by which he means revenue neutral. Revenue collected by the tax would be matched by reductions in payroll taxes.
Here are some challenging issues in political economy that Krauthammer does not address, but which much be resolved for a proposal such as his to succeed.
The economics of the case for a gasoline tax to accompliosh Krauthammer’s stated objectves were established many years ago. Among academic economists with significant governmental experience, Greg Mankiw may be the most ardent supporter.
What’s missing in Krauthammer’s proposal are solutions to several crucial political dilemmas:
1. Can the desire of special treatment interests for special treatment (e.g., trucking, airlines) be resisted? If they are exempted, the political fairness of the tax cannot be sustained. Krauthammer proposes to offer special consideration, not to prevent it.
2. There are many ways to make a tax revenue neutral that would not be viewed as fair. Krauthammer proposes to rebate the tax by reducing payroll taxes at the rate of $14 per worker per week. Congress could have other ideas, such as using the proceeds to fund pet projects or advance other priorities. Every modification that narrows the domain of rebate recipients or concentrates payments to favored interests would undermine public support.
3. Can a law authorizing a “net zero” gas tax be written to prevent Congress from abandoning revenue neutrality? It is notoriously difficult for any Congress to restrict its successors even when it wants to, a condition that almost certainly does not apply in this case. Public support for adding a gas tax on top of existing taxes is likely to be minimal. The public is likely to be skeptical of any proposal that does not somehow include draconian restrictions preventing future Congresses from reneging on the rebate half of the deal.
It is much harder to solve these political dilemmas (and probably others) than it is to solve the economic problem.