LET’S RAISE GAS TAXES AND LOWER INCOME TAXES

Eco-Economy Update 2006-4
For Immediate Release
May 11, 2006


LET’S RAISE GAS TAXES AND LOWER INCOME TAXES
www.earthpolicy.org/Updates/2006/Update54.htm


Lester R. Brown


Now that the $100 tax rebate proposed by the Senate Republican leadership
as a response to rising gasoline prices has been discarded, it is time to
get serious. Any effective response to climbing gas prices must recognize
a geological reality, namely that the earth’s oil reserves are shrinking.


The amount of oil pumped has exceeded new discoveries since 1980. And the
gap is widening. In 2004, for example, the world pumped nearly 31 billion
barrels of oil while discovering fewer than 8 billion barrels of new oil.


Instead of encouraging gasoline use with tax rebates or gas tax holidays,
we need a way to reduce gasoline use, one that is practical and
politically acceptable. We need a higher gas tax, but the only way to get
a gas tax rise large enough to wean us from imported oil is to offset the
rise with a reduction in the tax on income.


The gas tax boost should be substantial—a rise that will send a strong,
clear signal to consumers—and it should be gradually phased in. A gasoline
tax hike of 30¢ a gallon per year for the next 10 years would send the
right signal. This eventual increase of $3 per gallon would be offset at
every step of the way with a reduction in income taxes.


A $3 per gallon tax on gasoline in addition to the existing federal tax of
18¢ sounds like a lot. And it is, but our economic future is at stake.
Such taxes are not unheard of. Motorists in Germany pay a tax of $3.76 per
gallon, French drivers pay $3.46, and in the United Kingdom the figure is
$4 per gallon. Prices at the pump in these countries typically range
between $5 and $6 a gallon.


A number of countries in Europe have been shifting taxes in recent
years—lowering the tax on income and raising those on energy. Sweden, now
the leader, is in the middle of a 10-year shift of $1,100 per household
from income taxes to energy taxes. This is an integral part of Sweden’s
plan to be oil-free by 2020.


A planned long-term rise in the price of gasoline would enable automobile
owners and manufacturers to plan intelligently for an oil-short future. It
would encourage motorists trading in older cars to look for more
fuel-efficient vehicles, including the highly efficient gas-electric
hybrids. And it sends the right signals to manufacturers, enabling them to
shift to more fuel-efficient vehicles over time.


The shift to gas-electric hybrid cars offers another option. If we add a
second storage battery and a plug-in capacity to hybrids it will enable us
to do our short-distance driving, such as the daily commute or grocery
shopping, almost entirely with electricity. Cars could be recharged at
night when the demand for electricity is low.


If we build not merely hundreds of wind farms but thousands of them to
feed cheap electricity into the grid, then we can do our short-distance
driving with wind energy. The wind electricity equivalent of a gallon of
gasoline costs roughly 50¢. Wind energy is inexpensive, inexhaustible, and
it is ours.


Rising gas prices will also encourage investment in public transportation,
enabling us to reach the levels of convenience and reliability of systems
in Western Europe and Japan. They will also facilitate creation of the
increasingly popular bicycle- and pedestrian-friendly transport networks.
And higher gas prices are already mobilizing billions of dollars of
investment in the production of alternative fuels, such as corn-based
ethanol.


There is also the pressing question of who gets the revenue from oil price
increases. It is in the interest of oil-exporting countries to raise the
price of oil as high as possible without causing a global economic
recession or depression. If we let the Organization of Petroleum Exporting
Countries (OPEC) keep raising the price of oil, and hence of gasoline, the
increases will end up in OPEC treasuries.


If, however, we shift taxes, more of the additional money spent on
gasoline will end up in our treasury, and individuals will benefit from
lower income taxes. Higher U.S. gas taxes will also reduce the global
demand for oil, making it more difficult to raise the price.


A world where oil use is climbing is totally unprepared for the peaking
and subsequent decline of world oil production. Whether peak oil comes
this year, next year, or ten years from now, we need to be ready for it.
The adoption of a 10-year tax shift as outlined above would accelerate the
shift to alternative energy sources, and help reestablish U.S. leadership
in building a sustainable energy future.


# # #


Lester R. Brown is president of the Earth Policy Institute and author of
Plan B 2.0: Rescuing a Planet Under Stress and a Civilization in Trouble.
Plan B 2.0 is available online for purchase or free downloading at
www.earthpolicy.org/Books/PB2/index.htm


For additional information on this subject, go to
http://www.earthpolicy.org/Books/PB2/PB2ch2_ss2.htm
http://www.earthpolicy.org/Books/PB2/PB2ch10_ss4.htm
http://www.earthpolicy.org/Books/PB2/PB2ch12_ss2.htm