Gas tax increase won't be popular, but it fits energy reform agenda
Americans should not be surprised when the Obama administration begins making the case for a significant increase to the federal gasoline tax. Most people will not welcome the government-imposed boost to gasoline prices, but the move fits into President Barack Obama's agenda in several different areas.
Although gasoline prices have been rising recently, they still are well below the peaks of last summer when Americans reacted to $4-a-gallon gasoline by driving less and pushing up demand for fuel-efficient vehicles. Consumers lined up to buy hybrid cars, such at Toyota's Prius model, which was selling as soon as it hit the dealers' lots.
Last fall and winter, with gasoline below $2 a gallon and most Americans feeling the effects of the recession, the hybrid cars were languishing on dealers' lots, with sales of the Prius falling to about 50 percent of last summer's peak.
High-mileage cars sell well when gasoline prices are high. They do not sell well when market conditions cause gasoline prices to fall.
That reality complicates things for GM and its majority owner, the federal government. If the Obama administration presses GM and other automakers to produce more fuel-efficient cars, but gasoline prices remain relatively low, the consumer demand might not materialize.
So, to help GM and others sell the types of cars the government wants people to buy, the price of gasoline must move higher, and remain higher. And the most effective way to do that is to increase the federal tax on gasoline, which has not been increased since 1993.
To compensate for the regressive impact such a tax increase would have on the poor, there should be a tax break to offset the tax hike's impact on low-income drivers.
Fine-tuning the gas tax increase might mean a gradual phase-in and a provision to roll back the tax slightly if market conditions cause the price of gasoline at the pump to rise above $4 a gallon.
The idea will be to push up the price of gasoline with a tax increase to a level that causes drivers and car buyers to factor gasoline prices into their behavior.
Backers of a higher federal gasoline tax also will note that raising the price of gasoline through higher federal taxes offers other advantages to the federal government.
The Federal Highway Trust Fund, which receives federal gasoline taxes, is nearly broke. Estimates are that the fund will be depleted by mid-August. Increasing gasoline taxes will bring more money into the trust fund that helps pay for highway projects across the nation.
Moving toward energy independence is another reason that the Obama administration will want to drive up the price of gasoline with an increase in the federal gas tax. Higher gasoline prices help make other types of fuel more competitive, especially those that are considered renewable, such as ethanol and biodiesel. Government-backed projects for ethanol and biodiesel suffer from a lack of private investment when gasoline prices are low. Pushing gasoline prices higher will attract more investment to ethanol, biodiesel and other renewable fuels.
Last summer's high gasoline prices led to reduced consumption brought about by Americans choosing to drive less. This trimmed the amount of oil being imported to the United States from foreign countries, many of which are hostile to this country.
If higher gasoline prices cause Americans to buy more fuel-efficient cars and consume less oil, then the leverage oil-rich countries have over the U.S. is diminished, and that's something everyone can support.
Supporters argue that higher gasoline taxes mean sending the extra money to the federal government instead of OPEC countries and other oil-producing nations.
So, despite its guaranteed unpopularity and the potential political risks, Obama can be expected to step forward with a gas tax proposal and explain why it is the right thing for America in the long run.