Raise the Gasoline Tax? Funny, It Doesn’t Sound Republican

NY Times
Oct. 8, 2006

By DANIEL GROSS

FOR nearly two decades, Alan Greenspan owned the biggest megaphone in Washington as chairman of the Federal Reserve. When Mr. Greenspan dispensed advice on matters economic — interest rates, budget and tax policies, entitlements, the stock market, the best kind of mortgage — people listened.

As a rule, Mr. Greenspan, a Republican by temperament and background who was reappointed twice by Bill Clinton, adhered closely to Republican orthodoxy on taxes: the lower the better. Mr. Greenspan was hardly a proponent of raising taxes on energy to encourage conservation, a policy prescription generally associated with the politicians and economists of the left.

Until now. In late September, as he spoke to a group of business executives in Massachusetts, a question was posed as to whether he’d like to see an increase in the federal gasoline tax, which has stood at 18.4 cents a gallon since 1993. “Yes, I would,” Mr. Greenspan responded with atypical clarity. “That’s the way to get consumption down. It’s a national security issue.”

Mr. Greenspan isn’t the only Republican-aligned economist to have discovered, or rediscovered, a fondness for higher energy taxes since leaving government service. N. Gregory Mankiw, the Harvard economist who served as chairman of President Bush’s Council of Economic Advisers from 2003 to 2005, favored a higher gas tax before going to Washington, and has been banging the drum loudly for it since he left. On his blog, Mr. Mankiw has formed the Pigou Club, named for Arthur C. Pigou, the British economist credited with introducing the notion that taxes could be used to correct imperfections in the market. The roster of what Mr. Mankiw calls “economists and pundits with the good sense to have publicly advocated higher Pigovian taxes, such as gasoline taxes or carbon taxes,” includes some of the usual suspects — Paul Krugman, a columnist for The New York Times, and Al Gore, for example — as well as unusual suspects like Gary S. Becker, the economics professor and Nobel laureate at the University of Chicago.

Andrew A. Samwick, chief economist on the Council of Economic Advisers from July 2003 to June 2004, and a professor of economics at Dartmouth, is a member in good standing. So is Martin S. Feldstein, the intellectual godfather of a generation of Republican economists. In June, Mr. Feldstein laid out his own Pigovian plan on the home page of Republican economic orthodoxy — the Wall Street Journal editorial page. The government, Mr. Feldstein said, should essentially ration gas by distributing tradable gas rights that entitle people to use gasoline. Those who don’t want to use them could sell them, and those who want to drive more would buy them. “The 50-cent price of the T.G.R. would have the same incentive effect as a 50-cent gasoline tax,” he wrote.

What gives? Clearly, there is an emerging consensus among economists — right and left — that the nation would be better off, geopolitically and economically, if Americans used less gasoline. “Given the role that imported oil plays today, you can’t continue to be a responsible economist and not talk about ways to reduce that dependence,” Mr. Samwick said. “If you are concerned about the external consequences of imported oil, then you should raise the cost of it.” And free-market economists view a higher gas tax as a more elegant solution than, for example, raising auto efficiency standards.

Others chalk up the rising chorus for a higher gas tax to a growing unity among economists across the political spectrum on the deleterious effects of global warming. “The U.S. has reasonable arguments for not signing the Kyoto treaty, but we need to propose some other measure that will help reduce emissions,” said Kenneth Rogoff, former chief economist at the International Monetary Fund and professor of economics at Harvard. A sharply higher tax on gas would help reduce consumption, and hence emissions.

But as much as Republican-leaning economists like Messrs. Greenspan, Mankiw and Samwick may think that it’s a good idea, the Republican politicians who control the levers of power in Washington think that it’s an awfully bad one, even though gas taxes in the United States are far lower than those in other industrialized countries. According to the International Energy Agency, American gas taxes in August were a mere 40 cents a gallon on average, compared with $4.24 a gallon in Britain and $3.99 in Germany.

The last increase in the federal gas tax was enacted as part of the so-called deficit reduction act of 1993, a package of spending cuts and tax hikes that didn’t receive a single Republican vote in Congress. And because President Bush and his top political advisers are known to be adamantly opposed to any increase in the gas tax, economic advisers haven’t pushed it much. “We didn’t have policy discussions about raising the gas tax,” Mr. Samwick recalls of his time in the White House.

THIS highlights a professional hazard faced by academic economists who serve in presidential administrations. They must act as team players who value the overall success of the administration — even if they don’t agree with all of its policies. As a result, economists must often stow some of their policy ideas in an intellectual coat check at the White House gates, where they can be reclaimed upon return to private life.

In the 1990’s, during the less-disciplined Clinton years, it was relatively common for economic policy makers and advisers to publicly disagree — sometimes loudly — about issues ranging from health care to welfare reform.

“We were allowed to advocate for our ideas, both inside and to some degree outside,” said Brad DeLong, who served as deputy assistant secretary for economic policy at the Treasury Department from 1993 to 1995 and is now a professor of economics at the University of California, Berkeley. “But that’s not the way the current system works.”

When it comes to economic policy, the Bush administration has proved itself to be an intellectually regimented environment, less like the Harvard economics department and more like the Harvard crew team.

Daniel Gross writes the “Moneybox” column for Slate.com.