In the commentary section of the Wall Street Journal Harvard professor of economics, Greg Mankiw, argues that the United States should increase taxes on gasoline. He proposes an increase by 10 cents for 10 consecutive years, adding up to a total of $1 more per gallon compared to today. He points out that taxes would still end up being less than half of those in Britain (or for that matter in Sweden). Mankiw argues that this, while not necessarily good in itself, is better than other alternatives. He raises issues about environment, regulatory relief, tax incidence, national security and the federal budget, among others. I’ll have a look at a few of them.
Environment. As readers of this blog knows I’m not overly concerned with global warming, and emission reductions for this reason. In part because the data still seem insufficient to draw good conclusions from, and in part because even if the data were good enough we’d still be way past the point of no return so it seems wiser to spend money, effort and thoughts on measures to adapt. While cars do emit other unhealthy particles this, to me, isn’t that strong an argument.
Regulatory relief. Basically Mankiw’s point is that taxes would be more efficient than complex regulations that risk creating odd incentives, and requires a bureaucracy to follow up on. I agree.
Tax incidence. The burden of a higher tax is usually shared by consumers and producers. This has advantages here. Because the United States is such a large consumer on the oil market, a reduction in US consumption would be quite noticeable in the world market, driving prices down. This means countries like Saudi Arabia and Venezuela (and Norway, for that matter…) would carry some of the tax burden. Given condititions in the former two countries, this could easily be considered a good thing.
National security. This ties in with the previous point. Reducing US dependence on imported oil would make the War on Islamism easier. Currently the US fights terrorists with one hand while buying oil from its sponsors with the other, which cannot be considered optimal. Also, making the threat of an oil crisis weaker, would be good for all Western countries.
Federal budget. When baby-boomers retire the US will have to either reduce benefits or raise tax income. Politically doing only the former is probably impossible. A consumption tax, like this one, is less harmful to the economy than raising income taxes, and given its other benefits it may well be the best option.
Whether he’s right or not Mankiw’s column is worth reading (as is his blog). I think measures to reduce US dependence on oil are needed; not for global warming issues, or because it’s somehow evil to drive around in cars, but rather for reasons of national security. Security from islamist terror as well as economical crisis. US national security is, when it comes to those things, in line with Western national security in general.
It’s not everyday I am in favour of raising taxes. In fact, this may well be the only issue on which you’ll see me take such a position. That being said, European gasoline taxes are already high enough, and could indeed — in some countries (like Sweden and Britain) — well be lowered a little bit.
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