Gas taxes: too regressive to be a good idea?

To encourage a decrease in American oil consumption and to "smooth out oil's spikes and plunges" the Financial Page in the June 22 New Yorker argued for a phasing in a fluctuating gas tax. The article makes the argument that America's economic wellbeing is closely linked to cheap oil: "Blame for the current recession can be laid in part on the spike of the price of oil between June 2007 and July of 2008," the article stated, noting that not only did higher gas prices decimate demand for Detroit's gas-guzzlers (resulting in bankruptcies and layoffs) but that these prices also may have "magnified the housing bust by making long commutes to the overpriced exurbs less attractive."
Because of the scale India and China's increasing demand for oil, future oil prices will largely be out of our control, the New Yorker cautioned, and as a consequence America's long-term economic stability hinges on our ability to decrease our demand for oil. "Rising gas taxes is, of course, a solution that politicians - and voters - hate," the article stated. "But perhaps another oil shock or two will change that."
To support democracy in the Middle-East, Thomas Friedman also argued for imposing an immediate "Freedom Tax" of $1 a gallon on gasoline in a recent NYTimes Op-Ed. Friedman maintained that this tax increase would not only stimulate demand for energy efficient vehicles, but it would also "reduce our oil imports in a way that would surely affect the global price and weaken every petro-dictator."
I've had a few conversations of late, where I've tried to argue to my friends in the labor movement that higher gas taxes are a good thing, but I've had a difficult time refuting arguments that it would be a regressive tax increase.
Friedman suggested a gas tax rebate for the poor and elderly, which would seem like a pretty decent way to mitigate the tax burden on lower-income households, but if it were handled to the Earned Income Tax Credit, the out-of-pocket expenses could still put a strain on folks.
Figure 1: Increases in vehicle miles traveled via StreetsWiki.
One alternative to a higher gas tax would be taxing vehicle miles traveled (VMT), which would increase incentives for denser communities and shorter commutes. Though, just like the gas tax, a VMT tax would penalize America's rural poor as well as families who live in the cheaper outer exurbs. (In February, Transportation Secretary Ray LaHood suggested transitioning to VMT to help fund transportation spending, but it appears the White House is opposed).
Additionally, a VMT tax would require the installation of new tracking devices in vehicles to count millage, and it also raises larger privacy concerns surrounding the collection of such information. As John Jensen of Seattle Transit Blog notes, environmentalist's have also expressed concerns the VMT tax doesn't provide incentives for hybrid or electric vehicles because it fails to distinguish between gas guzzlers and cars that have great millage.
"Perhaps a VMT tax should be in addition to the gas tax (perhaps a lower gas tax)," Jensen suggests. "But a gas tax isn�t just a fee to use gas, it�s a fee to use our public roads. Having electric or hybrid cars pay for their share of the transportation grid makes sense. Charging additional VMT taxes on heavy trucks that damage the roads more � well, that makes sense too. But charging a gas tax on one hand, and mandating that cars use less gas on the other � that�s good for the earth but a very bad way to fund roads and transit."
Which brings us back to the question of whether the primary purpose of a gas tax should be to decrease oil consumption or whether its more critical to raise federal transportation funds. The White House has decided to delay the transportation funding debate until after the 2010 elections, which will postpone the "politically volatile" debate over whether we should continue to rely on the gas tax.
But this decision by the White House to hoard its political capital for health care reform may in fact eventually make higher gas taxes more palatable. If families are no longer struggling to pay insane premiums and deductibles, or stuck without any medical coverage at all, than perhaps having to spend a few more dollars at the pump will seem like less of a financial burden.

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