Against (higher) gas taxes

One of Andrew Sullivan’s readers asks a question that bears repeating:

I also find it interesting that you are so concerned about “the successful” being punished by taxes and simultaneously decide that $5 a gallon gas is the best thing for America. What about the “not successful” factory worker who has to drive to work – no public transportation, no bike route, no community close to the factory to live in? Does he deserve the punishment of $5 a gallon gas? What about my family that has to drive to a far out suburb to visit my very ill grandma at a specialty hospital? She has a rare illness that few facilities are equipped to deal with. There is no public transportation to this area. We visit her daily. Should we be punished by gas prices on top of the hardship brought on by illness? These gas prices on top of the rising cost of food is making many “unsuccessful” people’s lives miserable. But I guess that’s okay, because we aren’t successful – we deserve suffering and punishment.

Andrew’s response – that gas prices “are a necessary sign of a precious and over-used source of energy”; that we all pay the same for gasoline; that he favors “a flat tax that taxes everyone at the same rate”; and that under such a policy “[t]he successful will indeed pay more – but not disproportionately more” – seems to me to miss the point, which is that the realities of day-to-day life for many poorer rural Americans, who rely especially heavily on automobile travel and lack real public transportation options, mean that taxes on gasoline are straightforwardly regressive. The wealthy have alternatives: they can, if they live in higher-density areas, take the train or the bus, or they can buy more fuel-efficient cars, or they can switch jobs or telecommute. But those living in tiny houses in rural Alabama and driving tens of miles to low-paying factory jobs have no such options, which means that it is likely that they will end up paying the lion’s share of a gasoline tax in terms of both relative and – perhaps – absolute income as well. If progressive taxation is “immoral” (and does Andrew really think that??), levying especially high taxes on purchases that are disproportionately inescapable parts of the lives of the rural poor is downright evil.*

The only ways to get around this problem, I think, are either to try to argue that such a tax would not be regressive after all, or to propose post-taxation measures to redistribute resources back to those whose lives have been especially adversely affected. I have already articulated my skepticism of the first of these suggestions, though I’m not an economist and so it could be that there’s some super-subtle point that I’m missing which explains why the fact that the poorest and least population-dense parts of the United States are the ones where people emit the most carbon per capita and spend the highest percentage of their income on gasoline does not mean that taxing emissions will have a significantly disproportionate impact on the rural poor. The second approach, however, seems to be markedly more popular, and in any case is the approach advocated by the CBO (via Ryan Avent):

Lawmakers could choose to offset the price increases experienced by low- and moderate-income households by providing for the sale of some or all of the CO2 emission allowances and using the revenues to compensate such households.

For example, if all allowances were sold and the proceeds used for an equal lump-sum rebate to each household, the rebate would be greater than the average increase in low-income households’ spending on energy-intensive goods. CBO’s letter discusses that and other options, including broad or targeted reductions in income tax rates, payroll or income tax rebates, an increase in the Earned Income Tax Credit, a supplement to Food Stamp benefits, increased funding for the Low Income Home Energy Assistance Program, and increased incentives for energy-saving investments by households. In addition, automatic cost-of-living increases for Social Security and Supplemental Security Income would provide partial protection for some households.

Choosing among such options often involves a trade-off between providing targeted assistance to low- and moderate-income households and offsetting some of the adverse effects on overall economic activity from reducing carbon emissions.

(Barack Obama, too, hopefully promises to use carbon tax revenues to “address transition costs, including helping American workers affected by this economic transition”.) I think Andrew can do just as well as I in explaining what has gone wrong at this point. These people will already have felt the disproportionately severe pinch generated by artificially higher fuel costs and heating and electricity (not to mention food) prices by the time they are “compensated” as much as a year later, and are hardly likely to hoard the money for the year ahead. Moreover, even if they did manage to make it through the year and turned out to be this responsible, the re-redistributed money would likely go right back to the kinds of carbon-heavy purchases that were supposed to be the problem in the first place. If a flat tax is baldly regressive and the remedy to it inefficient and counterproductive, it seems that we should look long and hard for alternatives.

One can, of course, argue for the importance of taxing carbon and other emissions by framing such a policy as a tax on negative externalities, and insisting that citizens have the responsibility to bear the wider costs of the lives that they have chosen. But many of the most gasoline-reliant persons haven’t chosen these lives, nor – more importantly – do they really have any other options available to them. (Compare: there is something amiss in having people with predispositions toward certain illnesses pay more into the health insurance pool, notwithstanding the likely externalities that attend to their sickness-prone lives.) These people are not, again, the relatively well-to-do suburbanites who could just as well work from home or hop on mass transit or take a carpool or vanpool to work – for many Americans, it’s drive a long way in the car or don’t go to work at all. These people are already having a hell of a time making ends meet: is it really our place to put in place measures that make things even harder on them?

Note that I am not saying we should be trying to make the prices of gasoline and other fuels artificially lower than their market values. (Just ask Mexico how that’s going.) Nor am I saying that there are no corners of the American landscape that deserve to dwindle into ghost towns. My point, rather, is that if petroleum is getting scarce, then the market will make (has made?) that clear and prices will stay high or get higher. This will be extremely hard on quite a lot of people, and they in turn will find creative ways to deal with it. In the meantime, the best way to combat automobile emissions, assuming that this is the sort of thing that government should be doing in the first place, is to (1) target those places where lower-emissions options are already reasonably available (hence congestion pricing, rather than further taxing gasoline, seems more just inasmuch as areas with high traffic congestion are likely to be wealthier and have at least some mass transportation infrastructure in place) to encourage people to switch to healthier choices, and (2) work to make lower-emissions alternatives (e.g. cleaner automobiles and energy sources, as well as – where possible – forms of public transportation) more available across the board. (In other words, we should disestablish Kyoto.) But to single out for taxation, on however justifiable a ground, a product or class of products that is disproportionately relied on by the poorest and most economically vulnerable of the American citizenry seems to me to be the worst sort of injustice.

* This somewhat outdated paper puts the carbon tax quandary quite nicely:

It is bad new [sic] for tradespersons, for the skilled blue collar. A lot of the industries that have got to shrink to meet this abatement will be composed of skilled blue collar workers. It is relatively good for people like us, which raises the moral hazard question, I guess.

I guess so, too.

(Image via Flickrer noonetohearme. Cross-posted at Postmodern Conservative.)

[UPDATE: See Jim Henley's comment below, as well as my response to Andrew's response.]

Filed under: energy, environment, government/law, taxation, transportation