A Gas Tax Instead of CAFE

I’m working on a post describing what I think the Big Two and a Half ought to propose on December 2 when they drive their hybrids to DC (in lieu of flying) to beg for money again. As part of that, I will suggest that they ask Congress to levy a stiff gas tax. But since I am getting into more and more discussions with environmentalists who want any bailout to be tied to increased CAFE standards, I’m going to lay out why I think a tax is much better than increased CAFE standards for everyone.

Why CAFE Standards Suck at Achieving their Goal

I’m going to start with the assumption that the goal of CAFE standards is to force auto manufacturers to build more environmentally efficient cars (arguably that’s not what it was originally intended to do). It does so with brute force regulation that does not, at the same time, change the actual market-wide interest (or not) in environmental efficiency.

Until gas reached $4 plus this summer (and things are returning–though haven’t entirely returned–to where they were now that gas has gotten cheaper again), people calculated "energy efficiency" into their considerations when buying a car in terms of cost of ownership–that is, as one factor among others: how much the car cost, how much monthly loan payments would be, how much maintenance cost, how much insurance cost, and how much gas to run the car cost (this is reflected by the stickers dealers use to sell their cars, which usually describe efficiency both in terms of MPG but also in terms of year gas costs). For most people, efficiency is still a cost issue, and not a benefit per se.

Now consider how that will factor into the choice of a vehicle. For a lot of people, all those cost calculations will be less important than perceived safety or utility arguments. So if having something that feels like a tank is really important to you, you’re going to buy something that feels like a tank and only then consider how much it’ll cost you to run your psuedo-tank. The cost calculations will weigh, overall, much less in your consideration.

But if cost of ownership is your primary consideration, then you’re going to look at the cheapest cars that meet your basic needs, and pick which one is actually cheapest to run. And so long as energy efficiency remains one cost calculation among others, when people choose to buy based on cost of ownership, you can bet they’re going to be choosing to forgo a bunch of other bells and whistles–things like upgraded radios or fancy interiors or navigation devices or things like that–precisely the kinds of bells and whistles that contribute to higher profit margins on cars. In other words, for consumers who are looking at cost of ownership, chances are very good that they’re looking for cheap (which, for the auto industry, means low profit margins).

What you don’t have, in this calculation, are very many consumers who are interested in environmental efficiency and are willing to pay more for it the way a pseudo-tank driver will pay more to feel powerful on the road. As of May–at a time when rising gas prices were already affecting consumer choices–hybrids made up 2.2 percent of the US market. (I realize this grossly undercounts the people who value energy efficiency, but it’s a fair measure of the people who will pay 10% to 25% more solely for efficiency and environmental cache.) That was when gas averaged $3.76 a gallon; it’s down to $2.02 a gallon. And manufacturers are still selling those hybrids at a loss or with slim profits, so while those 2.2 percent of consumers will certainly spend more to have an energy efficient car, manufacturers aren’t necessarily making more.

All things being equal, the market suggests that manufacturers make their energy efficient cars cheaply and their gas guzzlers more expensively, because consumers buy energy efficient cars because they’re cheap to own, whereas consumers buy trucks or SUVs or sports car because some other feature: speed or pseudo-tank or utility. And so long as gas is cheap, that will remain true.

And CAFE standards don’t change this equation at all. They force manufacturers to make more of those cheap energy efficient cars to get their fleet-wide averages down (which cuts into their profitability). And, to some extent, make those cars more palatable to less price-sensitive consumers by adding in things like air bags. But because CAFE standards don’t change the market calculations of consumers, CAFE standards don’t make energy efficiency more valuable to consumers. CAFE standards basically force manufacturers to put costs into their cars that–unlike, say, safety, for which there has been a dramatic increase of value over the years–consumers don’t value. Even while the costs of energy efficiency went down over time, those were still costs with little market value, and therefore costs that cut into the profitability of cars in the short term.

Of course, the increase of gas prices this year dramatically changed that. Fairly quickly (measured, at least, in terms of an industry that things in terms of 3-year cycles), people decided the utility-based reasons they invented for needing a full-sized pickup were less important reasons than getting a car they could afford to drive. All of a sudden, the percentage of people who valued energy efficiency spiked way, way higher than just the people who could buy a hybrid.

This meant that a lot more people who would pay for the bells and whistles that contribute to a profitable car sale also wanted a car that got very good gas mileage.

A Good Gas Tax

One good way to get auto makers to make super-efficient cars and allow them to remain profitable is to ensure that market conditions continue to value energy efficiency as a benefit unto itself, above any consideration of cost of ownership. And one way to do that is to ensure that gas prices remain high enough–with the kind of stability and predictability that would drive 3-year product cycle calculations–such that consumers continue to place energy efficiency at the forefront of their decision-making about new cars.

You could do this by imposing a gas tax that would keep gas prices up at levels that make energy efficiency a leading factor in choosing cars. Make it a big gas tax, maybe a dollar a gallon, so that the value of energy efficiency remains where it was in August. (Obviously, phase it in, but even at a dollar a gallon gas would still be cheaper than where it was in August.) And use it as a revenue source to accomplish a number of things you need to do to enhance energy efficiency all around.

  1. Retire US auto pension debt
  2. Continually invest to help all US manufactuers (incl Toyota and Honda and Tesla) retool to meet higher standards (ha! Richard SHelby, got you some cash, I did!!)
  3. Invest in public transportation
  4. Invest in infrastructure
  5. Give credits to middle and working class people to pay their gas bills
  6. Give credits to middle and working class people to get out of their gas guzzler and into something efficient
  7. As part of 6, implement a recycling program designed to meet European requirements on recycling, which will simultaneously get gas guzzlers off the road while also creating a new green economy

Retiring auto pension debt

Use some gas tax proceeds to help the American car companies become more competitive by eliminating the biggest remaining budget item that they pay that their Japanese competitors don’t pay. The more you free up the pension debt with a dedicated tax, the more the American car companies can invest in new technology and–just as importantly–the less chance there is that the Pension Benefit Guarantee Corporation has to pick up that pension obligation.

Continual investment to help all US manufactuers (incl Toyota and Honda and Tesla) retool to meet higher standards

Rather than offer one-time $25 billion packages, a gas tax could fund an ongoing investment fund, both for manufacturers of all kinds (including transplants and smaller manufacturers like Tesla) invest in production. It might also fund a general fund for technology, that would result in technologies that any manufacturer could implement.

Invest in public transportation

Goes without saying.

Invest in infrastructure 

Also goes without saying–but also addresses an ongoing problem in that decreased driving has cut into the tax-based road fund as it is. Some of this could go to pay for plug-in and/or hydrogen infrastructure.

Credits for middle class and working class people

These credits would serve to do two things. In the very short term, it would help people pay for the higher gas prices, so there were some offset of the tax for those who genuinely couldn’t afford it (but obviously not a total offset, since you still need to change the valuation of efficiency). At the same time, part of the revenues from the tax could pay for a program that got people out of old clunkers and into new, efficient cars.  (Obviously, this would stimulate the kind of good production we want manufacturers to focus on). This way, you’d increase efficiency in the short term, and keep the customer base at dealers up.

Credits for recycling

But you don’t junk those clunkers. Instead, you have the manufacturers dispose of them, with the expectation that they salvage everything possible as materials (that is, no sales of big engines, but you can sell the steel). You spend some of the funds to offset the costs of a recycling program aiming to match the European standard, with the expectation that new cars would begin to have to meet these standards. Thus, in addition to the credits for new efficient cars, the tax would also lead to a support of a vehicle recycling program. 

59 replies
  1. bmaz says:

    Brilliant idea. Waggoner and Lutz ought to drive the freaking Volt prototype right up to the stinking Capitol Hill Steps.

    Literally a stunning idea. I’m emailing Lutz.

      • bmaz says:

        I have talked to people that have knowledge of the project. The car is for real. Seriously. The battery is the main issue. The original battery packs will likely only be so so for lifespan; but 2nd gen batteries should be very quick on line. Everything I hear is that the car itself is killer. If the company can be held together, Bob Lutz will deliver this baby.

  2. DeadLast says:

    This is also consistent with Obama’s approach to the freemarket, at least as approached via Economic Advisor Richard Thaler

    Had the Republicans embraced Clinton’s BTU tax, we would have better efficiency across the board. Europe taxes based on displacement, and that led to widespread use of turbos to boost efficiency. At the same time here in America, we got the Dodge Challenger with a Six-Pack carb. Can we praise single-digit fuel economy any more loudly?

    • emptywheel says:

      Biggest incompatiibility with what Obama has endorsed is that he has promised no new taxes for those making less than $250,000. But this tax needs to tax precisely the middle class to make a difference.

      So maybe we make Nancy “force” Obama to accept this???

  3. JTMinIA says:

    Do you really think that Democrats will agree to a increase in a tax? You could well be right that it’s the right approach – heck, I’ve wanted higher gas taxes for a long time – but do you really think that it has any chance in heck of passing?

    • emptywheel says:

      I really don’t know. I think it would actually get some Republicans who are beginning to be concerned about these issues. And it would offer a lot of sweeteners, even to Richard Shelby’s manufacturers.

      Nancy really really wants environmental efficiency. THing is, I’m not sure she understands the auto industry, and why CAFE ain’t going to diddly shit to bring about a more efficient industry.

      • JTMinIA says:

        My impression is that “raising taxes” is not something that gets decided by a rational balancing of the positives and negatives. Maybe some time in the past it was decided this way, but years and years of (BS) Republican talking points have made this issue too easy to derail. Once one critter who’s against it starts babbling about “Democrats raising your taxes,” it will die. Even if Pelosi wants it and could produce a cogent argument in its favor, she will bow to the moron-in-the-street parroting the talking point.

        • BooRadley says:

          You make excellent points.

          Obama/Axelrod would have to make it about “Buying (investing) American.

          It’s possible that inside of the deep depression we’ve entered into, Obama/Axelrod can harness some of Bush’s vitriol against them damn foreigners the Middle East and Hugo Chavez.

          It’s a hard sell, but I think we have to make it. If we don’t in five or ten years, someone else, India/China, will make it for us.

        • emptywheel says:

          True. And I don’t really expect the manufacturers to embrace this in the next 12 days, since their current projections don’t account for it and there is still the 3-year business cycle.

          That said, it’s got some sweetners for them, so who knows.

          But if the Big Two and a Half propose it, then it puts the onus on Congress to do something big. Plus, if big business came in saying, “Please tax our consumers” it might change the equation.

          Which is why it’s unlikely.

  4. BooRadley says:

    As tough as it will be to sell on capital hill, it would signal to central banks around the world that we’re serious about belt tightening.

    It also fits with Obama’s “pay as you go” statements.

    It would corner the GOP into deciding whether or not to support $600 billion dollars a year of imported oil. I’m not a fan of ethanol, but I think it’s less bad than importing. It’s a boost to all the algae-oil start-ups. It’s the ultimate Buy American plan.

  5. behindthefall says:

    Higher gas prices sure do hit people on a (very modest) fixed income where it hurts. Assuming that those people bought the most efficient car that they could afford, increasing the price of gas does not do much more than put them in a real bind. (Do you get the feeling that I am speaking from experience, here?) A sales tax increase has the same kind of effect — it hurts the people who are watching every dollar as it is, and they often are not buying luxuries or splurging as it is, so they just plain get hurt.

    • emptywheel says:

      Which is why I had credit offsets in there.

      Though for those who don’t have the most efficient car adn still need one, this might give them means to get one. Lots of seniors I know drive early 1990s boats.

      • behindthefall says:

        I practically salivate at the sight of a Prius. Food stamps would be unlikely to help, but, hey, “Don’t spit to Heaven!”, as my dear says. I’ll reread the post, because I obviously missed something the first time through.

        • bmaz says:

          No, ultimately you are right. I hate to say it, but it cannot be made fair and equal for everybody. And it cannot be made to where some of the lesser off are not proportionally hurt a little more (theoretically you could; practically you cannot I don’t think). But it has to be done, and before it is too late. We are down to one of those WWII deals of people have to suck it up. This crap, across the board, Big Auto included, can be turned around, and rather fast, if the executive and Congress have some guts and people quit whining and pitch in. If we don’t, it won’t, and there is going to be a lot of long term big suckiness.

          • Minnesotachuck says:

            I’ve long thought that European style gas taxes made more sense than the CAFE standards approach. As Marcy writes a gradual phase in is important. Furthermore, considering the economic situation at the moment, the first step of the phase in should be deferred for at least a year or two. As the Keyensians note, now is the time to pump $$ into the economy, not tax it out. But the legislation should project out at least ten years, with annual increases of 10 or 15 cents per year after the first step so that people can see the future impact of their auto-buying decisions. The delay also will give the Big Two and a Half time to get some more efficient product out there.

            • emptywheel says:

              I think you don’t wait. I think you get a smart numbers person (not me) to figure out what the gas tax is that really turns people off guzzlers–it’s probably around 3.50, and then take about 12 months to get to that level, but you get to it and then aim to stay there or a certain percent above natural tax level.

              We don’t have time to stave off global warming. And the same smart person who designs this might be able to make it impact neutral for working poor and fixed income people.

        • LabDancer says:

          Why is that you think “Foods stamps would be unlikely to help”? Are you referring to yourself, or more broadly the ’situation’?

          It isn’t that American voters in particular ‘hate taxes’ [although there’s a pretty good argument its among if not the only countries which can be claimed to have its foundation rooted in opposition to taxes] – EVERYONE hates taxation without a transparent or discernible socially justifiable goal.

          But the Zombies would be pointing to this to the end of time, as surely as Dems will be pointing to Bush for however long it takes for his brand to conflate with Buchanan, as evidence that it’s no myth: the Democratic party is the party of increased taxes, and every Dem party presidential candidate who claims or even commits to follow a plan that does not raise yer taxes is a lyin skonk!

          More humanely, how does this help the increasing numbers of folks who by virture of unemployment or hard military service or other circumstance bringing grinding poverty are going to be outside this commitment to go green, such as not being able to afford to own or operate or insure ANY personal motorized vehicular machine?

          So why not: ENERGY COUPONS?

          Settle on a number for national energy use, based on sources and costs and needs and sustainability in the context of a long term plan to reduce dependence on foreign sources and reduce the nation’s Big Footprint;

          divide up the total into individual coupons, or multiples thereof;

          issue every single US PERSON the exact same amount of coupons for use over a given period, to do with as he or she sees fit

          [obviously accounting for dependence circumstances, like parents for children]

          such that Warren Buffett gets the same number as Randy Newman’s LA lovin’ Ventura Highway thumbin’ bum,

          and let ‘er rip.

          Can’t be done you say? Look at WWII, the British Empire, including the autonomous “colonies”, and just about every country in wetern Europe.

          Commuhnism you say? Oh, ideological branding is so yesterday. What matters is whatever works.

          • BooRadley says:

            IIRC, Ian Welsh over at the mothership has had pretty much the same idea, although I think his only applied to gasoline.

    • emptywheel says:

      Oh, and one more thing it does. It drastically changes the market such that the next time they buy a car, better technology (like hybrids) would come within reach.

      It also means there will be more efficient cheap cars soon.

  6. cobernicus says:

    The gas tax is a good start. I would also put a sliding excise on cars proportional to their gasoline usage (the inverse of mpg) or even the square of usage. There would be a threshold value. Cars that fell below this threshold would get a credit. This would encourage the purchase of more efficient cars in the marketplace. People have a hard time making decisions on long-term costs.

    In France, back in the seventies, cars were rated by their “fiscal horsepower” which was based on an equation of several variables. My Peugeot 504 (a midsize by US Standards) was rated at 11 CV, very near the top level. (The Citroen 2 CV or “deux chevaux” has a rating equivalent to a motorcycle.) The fiscal HP affected everything related to a car The annual registration, even tolls were on a slding scale.

    It worked!

  7. skdadl says:

    This gas tax: would it be specifically targeted at gas for cars? ie, would it also apply to home-heating fuels, etc?

    Old-tyme social democrat here, whose antennae always start quivering at the notion of consumption taxes because they do always hit the people at the bottom first and worst. Below a certain point, tax credits don’t do much for people who don’t have the income in the first place, and many of those people are pensioners who aren’t thinking about their cars. They’re choosing between food and heat.

    • bell says:

      people on the lower end are going to suffer a lot more if the auto industry doesn’t pull some sort of rabbit out of the hat.. while the tax might hurt the bottom end more, the bottom end always get hit when the economy goes in the ditch…

  8. msobel says:

    I think you have to spell out more clearly why this regressive tax is acceptable. Perhaps if you had more detail about the credits. Perhaps like the old mileage tax credit but able to work for people who don’t itemize. If you don’t offset is someway, it doesn’t affect CEO’s and hurts the working (and commuting) poor.

    I also think you need numbers. As I remember a 50 cent tax would eliminate the deficit (back in the old Democratic deficit days)

    • bmaz says:

      While your points are valid, this has nothing to do with CEOs. This type of deal is just not going to change their consumption habits. It is the other 85-90% whose buying and driving habits have to be altered. Like I said above, it will not, and cannot, be painless. It is going to hurt.

  9. john in sacramento says:

    Since there’s no trash talk thread yet and I could be busy all day tomorrow


    Jets v Titans

    Titans between -5 and -6

    Sorry Tennessee fans this is a big game for Favre take the points and J-E-T-S Jets Jets Jets to win


    Colts v Bolts

    Chargers are -2.5

    This line is skewed by SoCal fan. The rule of thumb is: all SoCal teams are over valued by between 10 and 30% because of the proximity to Vegas. And besides Manning’s due for a big game and the Chargers pass D is not that great

    Take the Colts to win and the points


    Pats v Dolphins

    Dolphins are +1

    Revenge game for Bellichick. Pats win and cover


    Oregon State v Arizona

    Arizona -2.5

    The most dangerous team late in the season. Take the points and Beavers win

    Texas Tech and Oklahoma

    OSU is -7

    That’s huge for a game like this. Not getting a good feeling for a winner – it’s like that old saying about the Immovable Object v the Irresistible Force. That line is too much, take Tech and the points

  10. Scarecrow says:

    Great post, Marcy.

    What about Detroit having a “Restructuring Day” in DC the day before/of their report back to Congress. Have dozens of workers drive hybrid/high efficiency Detroit cars up the Capitol building and take Congress for ride. Literally. Show them what they can do if given a chance.

  11. MadDog says:

    Tarmac the Insignificent predicts:

    1. CAFE takes the win. Gas Tax doesn’t even show. Terrified Democratic bunny rabbits shudder at even the thought of the Big Bad Tax Wolf.

    2. During the week of Dec. 2, Congress bails the Big 2.5 regardless of the…cough…”plans” cobbled together (everybody gets a passing grade in kindergarten, doncha know?) by reprogramming the existing Energy Retooling legislation’s $25 Billion.

    • MadDog says:

      And to further embellish my point of a No on a Gas Tax:

      Penalizing the many at the expense of the few this way is political suicide. No Democratic Congress and Administration will attempt this shibboleth.

      Regardless EW whether your heart is in the right place, Consumption Taxes meant to change the behavior of the majority of folks rarely see the light of day, much less get passed by that same majority.

      I would instead suggest that a consumption tax that penalizes the minority would easily get majority support.

      And the way to do that is to penalize via taxes a low CAFE score.

      In this example, gas guzzlers would get a significant Federal excise tax at the time of sale, and with an added bonus, would also be heavily annually penalized at the State level for their yearly registration.

      You have or buy a vehicle with a low CAFE score? You get a big upfront tax hit and a continual major hit yearly.

      You have or buy a vehicle with a high CAFE score? You get no upfront tax hit and a continual minor hit yearly.

      This meets the first and only test of American populism which is “take from the rich and give to the poor.”

      It is a political strategy that Democrats can use to make eunuchs out of the typical Repug strategy of “lower taxes”.

      • emptywheel says:

        And you’re assuming that everyone who has to have a high CAFE vehicle can afford that any more than anyone else?

        I live in a neighborhood of craftsmen. They drive trucks, a lot of them, because they have to.

        • MadDog says:

          Well, yes and no.

          A heavy tax on fuel-inefficient CAFE vehicles is inherently valuing energy efficiency.

          A tiny or no tax on fuel-efficient CAFE vehicles does the very same thing.

      • emptywheel says:

        One more point.

        If we really really really want higher gas standards, then we have to make people pay for it. What you propose continues to demand that the companies develop technology with no real cost benefit, without having a way to demand customers pay for it.

        If WE ALL need to increase efficiency, then WE ALL need to pay for it–not just the car companies, which is what largely happens now.

        • MadDog says:

          What you propose continues to demand that the companies develop technology with no real cost benefit, without having a way to demand customers pay for it.

          Au contraire, I argue that, penalizing via taxes, a low CAFE score, does indeed provide that cost benefit. And that customers do indeed pay for it.

          Folks (and the vehicle manufacturers) will both figure out pretty quickly that vehicles with low CAFE scores are a non-starter.

          EW, as politely and respectfully as I can, don’t let the fact that it is your idea of higher Gas Taxes obscure your most excellent analytical abilities of seeing from a different viewpoint something of value.

          If WE ALL need to increase efficiency, then WE ALL need to pay for it–not just the car companies, which is what largely happens now.

          You suggestion of higher Gas Taxes is one approach.

          It is a consumption tax that I think we all can agree, at least over the short term (your neighbors driving those trucks *g*), most impacts those who can least afford it.

          It has little effect on rich folks, and large effects on poor folks. Agree?

          It does encourage over time, moving most folks to more high score CAFE vehicles. I do not disagree with that conclusion.

          My suggestion of higher Vehicle Taxes based on low CAFE scores also, over the short term, most impacts those who drive the majority of vehicles today which are low CAFE score vehicles.

          My suggestion, like yours, also discourages acquiring those future low CAFE score vehicles, and encourages acquiring future higher CAFE score vehicles.

          Who wants to pay more, perhaps significantly more, in taxes?

          EW, the only real difference to our approaches, is how a low CAFE score tax is applied.

          Your approach applies it to the fuel consumed, and my approach applies it to the vehicle that does the consuming.

          Lastly, I believe my approach is more politically palatable. At both the governmental level, as well as at the voter level.

          Tell me how I’m wrong. *g*

  12. JohnLopresti says:

    I vote for taxes. I also like imaginative leadership in office. Having served several such individuals, it is clear that some are bold leaders with perqs, others craven geniuses who pander to whomever can use that genius to generate meaningless opulence. The effort to halt global warming is going to incorporate many nations, and lots of second world and third world territories, introducing imbalances of an economic sort into traditional methods of managing industry and finance, a process which will be protracted, as the world watches warming continue idly, wondering who will step to the fore and turn the boat away from anthropogenic climate change. I will vote for a gas tax but perhaps only as part of a package: coal tax, LNG tax, logging tax, the list extends. Cap and trade is a crude method of looking for one mole burrow in a field pocked with many, result more GHGs. Politicians need to address ways to encourage integrated growth; I would relate the angst of unions and carmakers now to the proposed gas tax in a way that would draw yet more howls from government officials; I would ask our congress to develop a way to relieve fringe benefit responsibilities from both unions and management. If the results involve less GHGs and better cars, the expense augmentations will have been worth the extra cost to private individuals. But businesses which already are globalized provide lots of local flak when tax measures and fringe costs are impacted, triggering propaganda. The Republicans in our state have chafed for decades about our precarious policies which could be unfriendly to business; I hear some of the rhetoric from BO already, and from Pelosi. I would employ the brilliant reasoning behind a gas tax as a goad to encourage government to remake what fringe benefits are, in the auto sector, but also in other arenas. Surely there will be ways to offset the regressive effects of tax. The states need to be part of the bargain, as a federal exercise of taxing typically results in local Republicans pirating previously committed funding from community benefitting programs. Congress needs to ban that kind of policy of cascade effects. The Republicans will try to balance the economy on the backs of the poor, but the taxlaw writers should make that blame-shifting difficult.

  13. masaccio says:

    A flat tax on gas presents a problem. If it had been in effect this year, gas prices would have been over $5 per gallon, which would be an even bigger problem for a lot of people than the $4 per gallon was. So, the tax might be one that raised the price to some fixed price, and went down as the underlying price increased.

    As to the working people, we give them id cards that can be swiped at gas stations to reduce their cost, based on last year’s income tax return.

    A lot of things are possible today with computers that wouldn’t have been possible just a few years ago.

  14. emptywheel says:

    Your is more politically palatable. But history shows that mine achieves the desired results, in the short term (just look at August’s truck sales). And yours–which is effectively what we’ve got now (bc the auto companies get taxed if they’re over on CAFE) is exactly what we’ve got now.

    plus, the problem with yours is that it only affects the people who can afford a big behemoth or sports car. That’s not going to fix global warming. We need to change the behavior of everyone. And we need to get them willing to pay for improved technology. Right now, with the exception of hybrids, only teh car companies are paying for it.

    China did what you advocate–a tax on everything over 2L engine (which is about what it’d have to be to be effective, but as you can see, would be equally unpalatable here–though it did work in China). But the difference is that in China, the only people who drive are the upper middle class and the rich. Not everyone. And the difference is, that encouraged the production of smaller engines–but not better technology.

    • emptywheel says:

      Or to put it another way, to make it work–to incent real technological change, rather than just cheap–you’d have to set CAFEs really high–around 50 MPG.

      Of course, that would mean the cars that got 50 MPG would be 25,000 and up hybrids, which most people can’t afford. And the cars that made worse than that–even cheap–would have to be taxed at a really high rate to make the hybrid worth it. And you’d be asking a bunch of people who can’t afford the up-front investment on that kind of more expensive car to make it anyway.

      So you either ask people to pay really high prices up front, or you ask them to pay as they use the car.

      • MadDog says:

        Or to put it another way, to make it work–to incent real technological change, rather than just cheap–you’d have to set CAFEs really high–around 50 MPG.

        Yup, I do agree entirely!

        In either of our scenarios, the investment needs to produce a real high CAFE score vehicle are outside the investment abilities of the car manufacturers current economic state.

        Simply put, they need outside investment help to make this happen.

        Whether by government or private investment, this will take time to produce.

        In both of our scenarios, the taxes collected over the near term do not act as a sufficient “in-hand” investment that would rapidly produce a higher CAFE score vehicle base.

        And on the potential of car manufacturers just deciding to go with really cheap cars (a 4 passenger Moped), I think that is still a risk no matter how a tax is applied.

        So you either ask people to pay really high prices up front, or you ask them to pay as they use the car.

        In either of our scenarios, I’d imagine that the higher taxes would be incrementally rolled in.

        That said, in my scenario, really high prices up front act as a disincentive towards consumer purchase of low score CAFE vehicles.

        In your scenario, there is no up front disincentive towards consumer purchase of low score CAFE vehicles.

        In your scenario, there will be an ongoing disincentive/angst that is designed to influence/modify future buying behavior, but folks with existing low CAFE score vehicles will just have to grumble and live with it.

        The same is true in my scenario, but with one major difference. When looking at buying their next vehicle, my scenario severely disincents the purchase of low CAFE score vehicle.

        Your scenario has less of an “in-your-face” disincentive toward purchase of that low CAFE score vehicle. It relies instead on the consumer remembering the cumulative pain experience of those higher gas taxes.

        Of course, that would mean the cars that got 50 MPG would be 25,000 and up hybrids, which most people can’t afford.

        This will be true in either of our scenarios.

        • MadDog says:

          P.S. – I have to get some shuteye now or I’ll likely break my nose by falling asleep at the keyboard.

          And that’s no disrespect at all on the back and forth commentary. It’s what makes this place so fine!


  15. MsAnnaNOLA says:

    The problem is the higher gas prices lead to higher everything prices precisely because everything we buy is shipped by truck.

    This is what hurts the lower income folks. It is one thing to pay at the pump but then they pay and pay and pay at the grocery and drugstore too.

    I think the reason we have not done this since the last oil shock is because it is a political death sentence. Forget about re-election or keeping congress a dollar a gallon tax is stupidly not going to fly here.

    Maybe if they had increased cafe and increased the gas tax slightly over the last 15 to 20 years it would have worked. The problem is doing it all at once is the politically untenable thing to do.

    • bmaz says:

      That is where tax credits and offsets will have to try to offset some of the effect. But the bottom line is if we don’t take the pain now, while it is bearable, well you don’t want to envision the downside future.

  16. spoonful says:

    A rising gas price is the fuel that feeds inflation throughout the economy. The best way to keep the price low is to make it obsolete. A better fuel source can be found if enough money and technology are thrown at the effort and good, qualified people are in charge of this effort. Can that be done for $25 bb? If not, how much? Like the secret power source of one of superman’s evil villains, oil and gas have been the lifeblood of this nightmare administration. The best way to fight these villains is to keep the price low, not high. Also, while I think CAFE standards are inefficient, I think there is something inherently unfair about throwing government money and technology solely to U.S. owned companies, while at the same time excluding similarly situated companies like Toyota, solely because they are mostly foreign owned.

  17. BooRadley says:

    Really helpful thread on many level towards understanding the complexity of a dollar a gallon tax as it hits auto suppliers and consumers. Thanks to all, especially Marcy. Maybe we use the dollar/gallon as a revenue benchmark for what the US needs to receive to fund, “Retiring auto pension debt, Investment in public transportation, Investment in infrastructure, Credits for middle class and working class people, Credits for recycling.”

    Perhaps in order to fund 50-75% of that revenue benchmark we depend on a tax on imported crude. It’s critical this can be done without injuring our exports. IIRC, we pay around $600 billion annually for foreign crude. IMHO, that’s the low hanging fruit. Considering all the investment the GOP has made in scapegoating illegal aliens and foreigners, that’s a tax the GOP would have a tougher time fighting. Another limitation of this idea is that as a tax on foreign oil reduces imports, you need to look for that revenue from somewhere else.

    How much of that dollar-a-gallon gas tax can we get from a system of rationing that segregates consumers into the kind of auto they own? For example if I am a sole proprietor who uses my vehicle for hauling, that could be a different class of rationing than a passenger vehicle. UPS, Fed-X and all the trucking companies would be another huge class of diesel consumption that would require unique solutions. Since truckers haul our food, they have a direct impact on the local, organic food production you so rightly suggested. Unfortunately, the more complex the rationing, I am afraid the more difficult and costly it becomes to fairly administer.

    If in the early years we could just get the equivalent of a quarter a gallon from rationing, now you’re down to a much more manageable twenty-five cents a gallon hike on gasoline.

    I think gradually, we’re going to have to migrate towards the dollar-a-gallon tax. FWIW, there will be minimal support from some neo-cons, because as a I am sure you’re aware, TFriedman has long been a proponent of this.

  18. ltgra says:

    It seems like the auto industry is still fighting the last war.

    Car buyers, especially ones who have been in acidents, want heavier bigger cars for protection. Consequently everyone drives around in bigger and bigger cars. This is how tanks got so huge. So we need to remove the war from our city streets and highways. We need to fight the new war of global warming.

    This is a direct impact on mile per gallon.

    So do we worry about the few and not all the population?

    The legislation I would like passed would be to eliminate all cars not meeting a standard of maximum 500 pound cars and a 100 mile per gallon minimum.

    this would not mean that a car could not be big .. or beautiful… It would just be light and efficient. The parts that make a carcompfortable aren’t the parts that weight the most. the seating and electronics required would weight less than 50 pounds. Air craft engineers could probably make them lighter. and stronger and more .. expensive.. which is the part that would make things O K for the bottom line.

    Five years moratorium to remove all cars not meeting this standard off the road.

    Pickups are another worry and I don’t know how to deal with that. Big longhaul trucking versus using the railroad is very wasteful.

    This is the opportunity of a lifetime. By imposing these standards evryone is in the same ball park and the planet wins!

    Instead of bailing out the auto makers simply take over the pensions and obligations of the auto makers it would have to be cheaper and more money into the economy except us retiree s don’t spend much.

    so with all these proposals enacted everyone can now return to the game

    I reposted from the previous thread I just wanted to get my point in and I will probably get up on this same soapbox every once in a while .
    I just hope I don’t get Jodyed .

    • wmd1961 says:

      batteries are heavy. So are motors whether electric or IC.

      My motorcycle weighs more than 500 pounds. It gets about 45 mpg. Lighter bikes with higher gas mileage do exist, but 100 mpg is a stretch even for motorcycles that would be useful for anything other then limited local transportation.

      you seem to have some ideal vehicle in mind. Since you climbed on the soapbox maybe you can describe the materials, drivetrain, etc used in this ideal vehicle.

  19. DCWonk says:

    Of course it’s the best approach, any open-minded economist will tell you. Why? Because (a) it lets the market solve the problem; and (b) it directly taxes those who create negatives (pollution, etc.)

    But, now that the Dems finally have control — do you think there’s a snowball’s chance they would support such a thing? It will be demogogued to death, and the GOP will say: “see, he had a secret plan to tax the middle class after all, just like we said.”

    Anyone remember the last time the Dems passed a tax increase that lead to the last time the budget was ever balanced? It was 1993, and the Dems were thrown out of Congress in 1994. If we don’t remember, you can bet Congress-critters remember it. They’ve been scared to raise a tax ever since.

  20. NMvoiceofreason says:

    Sales taxes are regressive taxes, see http://en.wikipedia.org/wiki/Sales_tax if you don’t feel like trusting my particular fount of wisdom. People at the lower end are having a hard enough time, now you want to pile on?

    Are there any alternatives that can provide an incentive? How about a 1000$ credit for every mpg over 35 (capped at 50 mpg) and a 1000$ penalty for every mpg under 35 (capped at 35000$). How about instead of cutting the Solar Tax credit in half (as done by the Republicans), we double it?

    Taxes are used for two purposes. The first is to raise money for the government. The second is to implement policy. Are there any other ways to accomplish the same thing without punishing the people who have to choose between putting fuel in their car and food on the table?

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