July 7, 2008
The gas tax would be a huge step towards a regressive tax structure because it is tax on something that we all -- very unfortunately -- need in order to live out our daily lives.
The "European" occupies a funny position in the American mind. For some people the word signals foppish arrogance, but for just as many it signals enlightened government policy, strong social welfare systems, and green states. In Nelson D. Schwartz's New York Times piece, "Asleep at the Spigot" he points out that Europeans have been effectively using a gas tax for decades. That might make many of us pause for a moment to entertain the idea of such a tax as a viable means for reducing US oil dependence. I want to consider in a little more detail what is at stake with such a tax and whether it is really a better option than tightening the standards for fuel economy.
The dirty secret of many of the social provisions European nations make for their citizens is that those provisions are based on a regressive tax structure. That means most European nations tax all citizens, rich or poor, the same amount. In France the lower class is actually charged more for health care than the middle and upper class, who -- surprise, surprise -- get better care. Much of this taxation comes in the form of sales tax, such as a gas tax. We all know how sales tax works -- everyone pays the same amount based on how much they're buying. Sales tax, or any flat tax, hits the poor much harder than the rich. For example, if there was a sales tax on food, both the rich and poor need the same amount of food to live, but the wealthy have a lot more money with which to make sure their needs are provided for. A new tax on food would have little to no effect on the wealthy because it would be an insignificant proportion of their income. They might skip that third $4,000 Prada bag and cover their taxes for the next 5 years. A poor family, however, already struggling to make ends meet is going to suddenly find it very difficult to get together the extra money. They may not get enough food on the table, they may miss their electricity payment, or perhaps they won't be able to cover the mortgage on the house.
They pay relatively less than a rich family, but its hits them much harder.
My guess is that this is exactly why we don't tax food in the United States. Generally the United States has had a progressive tax structure, where the wealthier shoulder a proportionally larger burden -- on an individual-by-individual basis. So, Lindsay Lohan pays much more in taxes than a single mother working as an administrative assistant. This however hasn't kept the Lindsay Lohans of the world from living La Dolce Vita. I think we could all agree that Lindsay Lohan still has a lot more spending power than a single working-class mother and has been able to extravagantly indulge in what are in all probability the somewhat hard-earned fruits of her labor. So, the progressive tax structure hasn't inordinately penalized the very rich.
Instead, the net result of a progressive tax structure in the US has been increased social mobility. In the US there is greater social mobility than in Europe, which for the most part embraces a regressive tax structure. Now personally I think the opportunity to make something of yourself in the US is a more important and durable part of American culture than, for example, "driving long distances in powerful vehicles," which is what Newt Gingrich identified as a key cultural principle. The gas tax would be a huge step towards a regressive tax structure because it is tax on something that we all -- very unfortunately -- need in order to live out our daily lives. Most people, particularly the not-so rich, use gas to drive back and forth from work on what feels like every day of their lives. We need to work to pay the rent and put food on the table. So gas is a basic necessity -- not a luxury item we can do away with at will. This is big part of the reason why demand for gas has taken so long to respond to increased fuel prices.
So far I've presented an ideological reason for favoring industry regulation instead of a gas tax. You have to actually be a sucker for the American dream, believe that everyone should be able to make something of themselves, and embrace the idea of opportunity for all. Other people believe that the rich have a better idea of what to do with their discretionary income, so they should have more of it -- they'll do a better job of re-investing it into the economy. Even if this is true, there are some additional practical and immediate reasons to favor industry regulation.
Again, this is not going to come as a shock, but the people that are defaulting on their home loans are not the rich and famous. They're not even the moderately well-to-do. The people that are at greatest risk of defaulting on home mortgages, and soon enough on credit card bills, are those that are just barely scraping by. These people are already going to be having a very difficult time with paying $4.00 a gallon. It's pretty clear to me that adding a $6.00 tax on top of that is going to push even those that were optimistic about weathering the current crisis, right over the edge. Given the state of the economy, this seems like a very bad idea indeed.
On the other hand industry regulation is going to prevent those that have the money to choose to spend oil resources more freely than those of us who don't. The very rich aren't going to have the option to buy that 10 mpg Cadillac Escalade. At the industry level, car makers are going to have to come up with a new way to make a profit off of consumers -- something other than producing SUVs. Last I checked innovation, not lobbying, was supposed to drive firm profits and economic growth. Here's a perfect opportunity to bring some innovation back into the American auto industry. They are going to have to work something else out sooner or later in any case.
B U S I N E S S - T O - B U S I N E S S