As both Charles Krauthammer and Thomas Friedman have argued, a significant increase in the federal gas tax combined with an equal decrease in the income tax may well be the most important foreign policy move that Barack Obama can make in his first 100 days in office. While conservatives (and liberals) may shudder at the thought of placing an increased burden on our already weakened economy, the net neutral effect of combining a gas tax hike and income tax reduction should minimize such concerns. The immediate benefits of artificially raising the price of gasoline should be obvious—not too long ago, we all witnessed the effects of $4 gas. When gas got expensive, people’s behavior began to change. Sales of fuel efficient cars went up, driving decreased, and alternative energy sources were well on their way to becoming cost competitive.
And then the recession struck. The price of a barrel of oil plummeted from over $140 to under $40, and within months, CNNMoney had reported that “low gas prices and fat incentives are reigniting America’s taste for big vehicles. Trucks and SUVs will outsell cars in December,…something that hasn’t happened since February.” The uncertain nature of oil prices has made the development of alternative energies nearly impossible, and the United States has remained hopelessly dependent on malignant petro-states set against our interests.
The justifications behind increasing the gas tax are varied, but a primary one set forth by Friedman and others on the left has been the environment. While Al Gore is sure that “the science is in” on global warming, many conservatives are not. In order not to offend skeptics, I will refrain from offering it as further grounds for action. Instead, I will focus on two other reasons: national security and the economy.
National Security. Raising the gas tax will enable the United States to cripple Russia’s ascent, undermine Iran’s nuclear program, halt Venezuela’s adventurism in its tracks, and prevent the further expansion of global terrorist networks. The reach of petrodollars is widespread, and America has a huge influence on the oil market. The United States now consumes 24 percent of the world’s oil, which means that we can significantly affect global prices. By increasing domestic prices, we would shrink domestic demand, thereby reducing global prices. The result: bankruptcy for our enemies. At $90 a barrel, Iran and Venezuela can no longer balance their budgets. At $70, Russia goes into deficit. With less money flowing into Saudi Arabia’s coffers, terrorist networks would find themselves starved for cash to establish new madrasas and create new training facilities. If we could keep oil under $40 or even $50, many of these threats may simply disappear.
The Economy. With as much as 60 percent of our oil now coming from overseas, the American economy has become incredibly vulnerable to shocks in the price of oil. A higher gas tax could help stabilize prices while reducing our reliance on oil. Further, a net neutral gas tax may even help to stimulate the economy. While this policy would discourage consumption of gasoline, it would encourage work by reducing the income tax on all tax brackets. In other words, activity beneficial to the economy would increase and harmful consumption would decrease. Finally, the gas tax would reduce the need for other costly regulations such as increases in CAFE (Corporate Average Fuel Economy) standards. Such regulation unnecessarily burdens the economy and inhibits the flexibility and competitiveness of American firms. Instead, the government can more directly tax the activity it is trying to reduce and allow market forces to take over from there.
The United States has a unique opportunity to increase the gas tax. With memories of $4 gas still lingering in our memories, the psychological impact of the policy would be minimized. Some will argue that increasing taxation during a recession would be catastrophic, but the net neutral approach would ensure the economy is not adversely affected. Others might argue that certain industries, such as trucking, would suffer more than others. But for such industries, additional tax rebates could be offered. Finally, some may venture that the reduction in the payroll tax would offset any impact of a gas tax because the average American would have just as much money as before and would simply consume the same quantity of gasoline. Yet increased gas prices disincentivize consumption of gas while a lower income tax provides money that could be spent on any good—not just oil.
A less relevant but still significant cause for concern is the massively expanding demand for fossil fuels and other resources in China and India. Why even act, some may ask, if large developing nations will simply offset any impact we may have? While this question undoubtedly undermines (to some extent) claims of solving global warming, it does little to disrupt claims about the economy or national security. Decreasing our vulnerability to oil shocks, incentivizing productivity, ensuring our competitiveness in the energy industry for years to come: these factors do not rely on increased Asian consumption of oil.
Further, American reliance on foreign oil puts our fate at the whim of malicious autocrats set on expanding their own power and resisting ours. And although China and India may yet become the two dominant customers for the world’s petro-states, the United States still retains the adverse title of world’s largest oil consumer—and second place is still nearly 14 million barrels per day behind. Our massive influence on global prices means that we can greatly disrupt the economies of our enemies in the short term, while hastening the development of alternative technologies that will further undermine those nations in the long term. Developing nations (and the rest of the world for that matter) will only begin to reduce total oil consumption when it becomes economically realistic, which means that the United States must find and develop cost effective energy sources. Implementing a steeper gas tax will accelerate the development of such technologies and hasten the day when global consumption will decrease rather than continue to skyrocket.
Unfortunately, the hurdles posed by our political system may be sufficient to undermine any chance of passage. In the past few decades, presidents have rarely attempted to increase the gas tax. Reagan, Bush I, and Clinton all had major fights to get just a four cent increase passed. The possibility of passing a one dollar increase (as advocated by Krauthammer) or a two to three dollar increase (as advocated by Friedman), even when combined with an equal decrease in the income tax, appears minute. Many Republicans would oppose it simply on the basis of resisting taxation, and Democrats from oil states would be under enormous pressure to oppose such a measure as well.
Thus, our most potent foreign policy tool may be shelved once again.