Gasoline taxes and CAFE regulations

Michael Giberson

Most of the current 18.4 cents per gallon federal gasoline tax is set to expire at the end of September, and there are some indications that it may become the occasion for the next big political fight in Congress. See Politico and Platts for background. Grover Nordquist, of Americans for Tax Reform, says a vote to keep the current federal gasoline tax wouldn’t violate pledges some members of Congress have made not to raise taxes. Still, he’d prefer states keep the gasoline tax money they collect rather than have a portion flow into Washington, D.C., and come back with strings attached.

Now consider that recently that President Obama has been trumpeting a far-reaching agreement to raise CAFE standards over the next 14 years to levels about double the current mileage standard, and that nearly every serious analysis concludes that whatever CAFE can do would be achievable at much lower cost to the economy via an increase in the gasoline tax. A 2005 analysis published in the Journal of Environmental Economics and Management concluded a 12 cents per gallon increase in the gas tax would reduce fuel consumption as much as a 10 percent increase in CAFE, and achieve that reduction at a 70 percent lower cost.

I’d like to propose the following deal: Repeal CAFE, raise the gasoline tax in stages over the next several years, and offset the revenue increases with reductions in other federal taxes. That is “Repeal” with a capital R. Not delay the increases, not block the increases, not anything that keeps CAFE around in the slightest possible role. Repeal CAFE and raise the gasoline tax instead. No net increase in federal taxes, and we toss out a cumbersome, bureaucratic, inefficient regulatory system that has been burdening automakers and auto consumers for years.

UNFORTUNATELY, two problems:

First, hard line anti-tax views will let Members of Congress pretend to small government values for not increasing the gas tax while allowing the much more costly federal intrusion of super-sizing CAFE regulations. Hey Members of Congress, just because it isn’t labeled a tax increase doesn’t mean it is okay!

Second, fuel economy regulations have become more complicated recently, with the EPA assuming a role in regulating CO2 levels and subsequently granting California a waiver to pursue its own related air regulations. One reason automakers said they went along with the CAFE standard increases announced by the White House is that they were afraid of the complications that would come from separate California, EPA, and Department of Transportation regulations all addressing fuel economy directly (USDOT CAFE) or indirectly (California and EPA CO2 regulations).

So my wonderful idea faces challenges from right-wing politics-for-brains types and left-wing state interventionists, meaning repeal of CAFE is – relatively speaking – a radically moderate/centrist and probably sensible proposal.

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4 thoughts on “Gasoline taxes and CAFE regulations

  1. I’ve always been confused with automakers being scared of the California threat. Isn’t California more dependent on transportation than the automakers really are on selling to one (admittedly populous) state? I mean couldn’t the auto-makers just threaten not to produce any vehicles that fit California’s standards (aside from Hybrid’s, etc.)? I suspect Californian politicians would be feeling the heat well before the automakers.

  2. Another idea is to recognize transportation as a network utility that could be managed as a club good where congestion is not high and managed using congestion pricing mechanisms for the sections of road that have rival demands. Within the regulated utility framework, the users/beneficiaries (broadly defined) would pay and taxes would be unnecessary – except to the extent that property tax or utility access fee would partially support the local roadway networks that provide value to properties through access.

  3. Ben, your analysis is interesting. Likely small cars, hybrids, and electrics would satisfy the most stringent regs California is likely to enact, so just sell other things elsewhere. No need to design different cars for different markets. California auto dealers would scream, perhaps, but their complaint would be with the state not the automakers.

    Jay, I’m reluctant to conclude that the regulated utility framework is a good model for anything, but like thinking in terms of club goods (as opposed to sloppy “public goods” arguments, which are much too frequent).

  4. Michael, I offer the regulated utility model as an alternative to the idea that roads are a public good and must be owned and managed by government agencies, and supported by taxes. I think that if we consider the assertion that roads are public goods as self serving statements by pols and government workers, we may be able to see other, more efficient and less political, ways of providing the vital services of roadway networks.

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