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Trillium News

May 18, 2009

Strategic View: Should We Wish for High or Low Gas Prices?

While it’s easy to blame paltry U.S. gas taxes on auto executives and the craven politicians who work for them, in fact low gas prices are wildly popular in the United States, particularly among the poorer half of the income distribution. What we environmentalists often have missed in the debate over policy is the pressure felt by struggling U.S. families teetering over a frayed social safety net. Gas taxes are extremely regressive, meaning the poorer you are, the higher the percentage of your income that is affected. Energy costs eat up 15 percent of the poorest households’ income, compared to only 3 percent for average households. So the obvious coalition to lobby against higher fossil fuel taxes is an unholy alliance of big oil, auto companies, and poor people.For environmentalists, it’s obvious: we should wish for very high gas prices. The benefits of higher prices at the pump were also clear to the National Surface Transportation and Revenue Study Commission, whose report to Congress last year called for raising the federal gas tax five to eight cents a year for several years and then indexing it to inflation. The U.S. Transportation Secretary immediately renounced the findings, but that was long ago in pre-Obama 2008.

The European enthusiasm for high gas taxes has led to more efficient cars and greater use of mass transit.  Yet US federal gas taxes are stuck at 18.4¢ per gallon.  Add that to the weak state excise taxes, averaging 20-30¢ per gallon, and the U.S. has some of the cheapest petrol this side of Venezuela.

Clever greens are figuring out ways to recast the politics of pollution taxes. Green for All and the Apollo Alliance are forming diverse networks that connect improved environmental policy to economic justice and opportunity. Better energy policy may require finding other regressive taxes to cut, offsetting higher taxes on polluting fossil fuels. The most promising choice is the payroll tax funding social security. Unlike income taxes, which poorer people don’t generally pay, the payroll tax is 12.4% (split between employer and worker) starting on the first dollar of wage income – but only for the first $106,800 of earnings.  And those rich enough to be living a life of leisure don’t pay a penny of this tax. It’s very regressive.

Exempting the first, say, $10,000 of low-income workers’ wages from social security taxes would be the equivalent of a $620 tax cut.  A $1 per gallon federal gas tax (funding social security) would soak up $620 from someone driving 12,400 miles per year at 20 miles per gallon.*  With a payroll tax cut and a gas price increase, a low-income worker could simply keep doing what they are doing, having no net impact on their pocketbook or the funding of social security. However, these higher relative prices for gas would immediately create incentives for all drivers to consider more energy-efficient vehicles, and less costly alternatives such as biking, carpooling, trip combining, walking and mass transit.

So yes, higher gas taxes are still a great idea, and they can make life better for struggling working people, not worse. 

* Maybe less. If gas prices don’t rise by the full $1, the $620 tax burden is split between the driver and the station owner.

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