Is it Time for a Significant Federal Gas Tax?

For decades, even hinting at an increase in the Federal Gasoline Tax has been considered political suicide. New polling, however, shows that Americans may be willing to support a gas tax increase if it would reduce our dependency on foreign oil. Alternative energy proponents such as T. Boone Pickens have been politically savvy enough to appeal to fears ingrained in the American psyche.

Many people understand that increasing the gas tax alone would decrease demand, and therefore reduce our dependence on foreign sources of oil, but I believe we can take this even further. An increase in the gas tax of $.50 to $1.00 could net between $75 billion and $150 billion. That money could be used to increase funding for mass transit and tax credits for purchasing energy efficient vehicles and personal energy efficiency improvements.

Now many members of the media and even auto industry CEOs are beginning to discuss the merits of an increased gasoline tax.

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It’s even becoming clear that increased gasoline taxes don’t have serious impacts on the economy. In the European Union, now rivaling the United States for the world’s largest economy, gasoline prices are between $6 and $9 per gallon, mainly due to their member countries’ fuel taxes.

There are pitfalls, however. Gasoline taxes are a regressive tax. These taxes will affect lower income Americans significantly more than higher income Americans. Families with lower means are not able to purchase higher efficiency vehicles because of the higher cost. This means that any gasoline tax increases must be focused on reducing the impact on these families. There are several ways to accomplish this. Congress could use the revenues to decrease the cost of vehicles for people in the lowest two quintiles of American wage earners or to increase energy assistance for the same families.