A Gas Tax with a Rebate

Recently, there have been several proposals to encourage conservation of oil. One proposal from Robert Frank increases the tax on gasoline, then rebates the tax revenue to consumers through a payroll tax reduction or some other means. As he states:

In my Feb. 16 column, I suggested an additional gasoline tax of $2 a gallon. All revenue would ... be returned on an approximately equal per capita basis

To look at the economics of this proposal, I decided to examine a fairly standard textbook treatment of the topic where a tax on each gallon of gas consumed is imposed along with a lump-sum tax rebate to consumers on an equal per capita basis. (I hope the microeconomists won't mind a macro guy stumbling around in their territory. This proposal is discussed in Pindyck and Rubinfeld 5th ed., pgs. 114-115.)

Here's a graph of what happens before and after the tax, and after both the tax and the rebate.

Click on figure to enlarge

The consumer starts out at point A consuming Q_A gallons of gasoline and has a utility level of U₂. After the tax, which rotates the budget line downward as shown by the dashed budget constraint, the consumer moves to point B which is on a lower indifference curve U₁, and consumption falls to Q_B. Finally, after the rebate which shifts the budget line outward, the consumer moves to point C and consumption increases to Q_C (the tangent indifference curve at point C is omitted for clarity).

Overall, the consumption of gasoline has fallen, as intended, and the consumer is worse off because the level of utility attainable at point C is below the level U₂ at point A. Even though the money comes back to consumers in the form of a rebate, the reason consumption falls from A to C is because the income elasticity of demand for gasoline is relatively low (around .3 by some estimates) so that the substitution effect dominates the income effect.

In this example, a low-income household would be made worse off by the tax and rebate proposal (because indifference curve U₂ is no longer attainable), but it's still possible for some low-income individuals, those who consume less gas than the value of the lump-sum rebate, to benefit. However, the substitution effect induced by the tax makes the average household worse off. To aid low income individuals, other proposals such as linking the size of the rebate to income could be examined as well.

Finally, this highlights the costs to households, but there are also potential benefits. To assess the proposal, the costs must be compared to the benefits from reduced dependence on foreign oil and the additional security that brings about, and the environmental and other benefits from lower consumption of gasoline.

Comments

[dryfly]

In this example, a low-income household would be made worse off by the tax and rebate proposal ... To aid low income individuals, other proposals such as linking the size of the rebate to income could be examined as well.

If we are really going to make a dent in energy consumption then even the poor will have to feel some additional pain... if we provide 'other proposals' that still allow them to painlessly consume high levels of fossil fuels it won't reduce their consumption nor their dependence... in effect they will be locked into the 'old' and inefficient way of doing things... as always.

The additional provisions to mitigate the pain need to be things like expanded & affordable mass transit and low cost housing closer to work/school/play. As it is now many of the poor have VERY long commutes & little or no mass transit options. As soon as viable mass transit moves into their community then real estate prices & rents rise so as to price them out and push them even farther to the periphery.

This is especially true out here in 'fly over' - I've seen it many times.

[pgl]

Nice but missing one important macro-point. We don't need the rebate as the gas tax would lower the deficit which means there'd be an automatic reduction in deferred tax liabilities. I say use gasoline taxes as a means to return to fiscal sanity. Ah wait, this is a Greg Mankiw proposal already.

[anne]

Yes; returning to sanity means walking, though I am thinking about possibly allowing bicycles. We live in a country where Lincoln Navigators are tax subsidized, but economists have suddenly discovered that gasoline is expensive but needs to be even more expensive, especially for people who can least manage the expense in a country made for driving and driving alone. No problem, there are always tax rebates after raising taxes and added to tax subsidies that are already there. Tra la :)

Mark Thoma's analysis is nicely done, by the way.

[john c. halasz]

What about taxing barrels of oil, both foreign and domestic? Wouldn't that capture some of the rents in high oil prices, which could then be redistributed, whether to mass transit infrastructure and other conservation measures, development of sustainable alternative energy sources or FICA rebates?

[anne]

Return to fiscal sanity, "walk." Sort of like Seinfeld reacting to Elaine's suggestion of sex to save the friendship. "Sex to save the friendship." These moralist economists make me want to trade my Prius for a Hummer. Heck, I am going to keep the house as cool as a meat locker this summer :)

[dWj]

The impact of environmental effects on utility have been left out of the diagram because of their external nature. In that diagram, everyone else's reduction in gasoline use moves all of my utility curves in. If you leave the entire point of a policy out of your analysis of the policy, it isn't surprising that you might find its benefits to be less than its costs.

[Tom Bozzo]

The picture suggests more that a rebate might not make the typical driver whole, in utility terms -- though the "true" picture is complicated even there -- but the implications for the poor are not so obvious. The factoid of note is that the poor don't drive gas-guzzling SUVs. So even a budget-positive rebate wouldn't necessarily harm them. (And that would not be a bad thing; what was really stupid about the Feldstein tradeable ration plan is that it would introduce a mess of transaction costs for the primary purpose of keeping money away from a federal government that's running massive structural deficits.)

[anne]

Tom Bozzo, thank you for clarifying why Marty Feldstein so complicated the conservation plan. I was puzzled till now :)

[save_the_rustbelt]

"...We don't need the rebate as the gas tax would lower the deficit which means there'd be an automatic reduction in deferred tax liabilities...."

Yeah, that will help working families put food on the table.

Do economists know any real people?

[Movie Guy]

john c. halasz,

That's not a bad idea. Of course, though, that is not the goal of those proposing the various so-called "gas taxes".

I wouldn't support your approach of providing FICA rebates. That's mixing apples and oranges, which is exactly what is wrong with the new (old, actually) gas tax proposals.

[save_the_rustbelt]

This is the kind of heavy handed cash-sucking social engineering that makes people really angry at the government.

Are regressive taxes the only tool in our tool box? Wow, we are in trouble.

[dryfly]

Like I said in the first comment... I'd be all in favor of increased gas taxes if there were affordable alternatives for low income folks but there are few in most places... They all too often live far from work & commute via automobile and contrary to popular belief low income folks aren't driving fancy new SUVs... more likely it is a late model oil burning rattle trap.

Everyone would be a lot better off if low income folks had reasonable alternatives - mass transit &/or affordable housing closer to where their jobs are. Increased gas tax WITHOUT alternatives (subsidized or not) will not help them nor will it reduce oil consumption. It will be a double loser.

[cm]

The hair in the soup is that this proposal only replaces one revenue source with another that is arguably more regressive at the low end (OTOH it can potentially broaden the revenue base to all fuel users). It does not address that part of the payroll tax revenue is misappropriated to cover operational expenses that have nothing whatsoever to do with the supposed use of the revenue.

Germany has a similar scheme, but the surcharge is only applied to gasoline, not diesel, because the latter is predominantly used by big business, and we don't want to become uncompetitive, no? So to a large part private individuals and small businesses pay the surcharge.

[cm]

Tom Bozzo: I have no way of telling, other than applying prejudice, who is poor or not by looking at any given driver.

But hereabouts quite a few people drive not SUVs, but old road cruisers and sundry old pieces of junk, which I wouldn't put in the fuel-efficient category either.

I don't know whether "the poor" would now or in the past go for the cheaper used vehicle without too much regard for expected fuel/repair expenses, or hold on to an inefficient vehicle for being unable to afford the transaction cost of acquiring a more efficient one, but it would be not unplausible.

says...

How about sleep in the office and go see the kids in the remote suburbia only during the weekend. Save on gas and keep the boss happy. Who cares about family, there's so many divorces anyway.

[anne]

http://www.nytimes.com/2006/06/12/opinion/12mon2.html?ex=1307764800&en=82e76b94aa88f5a3&ei=5090&partner=rssuserland&emc=rss

June 12, 2006

Let Them Go Green

Just last month, Goldman Sachs invested $27 million in Iogen, the Canadian ethanol producer. The little-noticed move was the latest piece of a larger strategy of enlarging the company's profile in environmentally conscious investments. Goldman has now risked over $1 billion on renewable energy projects, including solar and wind-energy projects and alternatives to gasoline like cellulosic ethanol.

Goldman is only one of a growing number of investment and manufacturing enterprises chasing emerging technologies that could help provide the alternative energy sources that politicians from President Bush on down say they want and that the country will certainly need in years to come. Meanwhile, more and more companies — including heavyweights like DuPont, Johnson & Johnson and United Technologies — have been busily cleaning up their own acts, using less energy by making themselves more efficient.

Over time, these efforts could place the United States in the forefront of an emerging global market for cleaner technologies. They are also essential to the effort to tackle the two big energy-related issues of the age, global warming and the world's dependence on precarious supplies of foreign oil.

If Washington is smart, it will throw its weight behind these efforts by providing the necessary incentives, whether as loans, direct grants or targeted tax breaks. But Washington is dawdling; several excellent bills designed to advance the development and wider use of various alternative fuels, cleaner cars and carbon-free power plants are languishing in the election-shortened legislative year....

[Bruce Webb]

Those that argue we need a sharply higher gas tax on the utilitarian ground of reducing gas consumption need to show that $3.00 a gallon gas is not already doing that. I see it at work, customers who formerly grumbled at the time it took in traffic to get to the Courthouse now calculate that in gallons. People are combining trips.

People who think that $3.00/gallon gas is not enough but a $5.15/hour minimum wage is just dandy need to answer this question "Why do you hate working people?"

People at the lower end of the income sprectrum don't have the luxury of calculating that buying this car for $1000 will pay off over its anticipated 2 year lifetime because of lower anticipated repair and fuel costs as opposed to buying the beater for $500 even though you know it won't last through the year. Because they don't have the extra $500 bucks.

Most times poor people can't afford to save money by buying in bulk, they can't get ahead enough to shop at CostCo. Sure if you took their aggregate consumption and compare it to their aggregate income they would be better off buying toilet paper by the twenty pack and ketchup by the gallon (or that $1000 car), but you can't just tell your kids "Sure I know you are hungry, but food month is next month, and Momma just saved a ton on household cleaners for the year."

I'm with S-T-R on this one. Certain economists need to stand in the parking lot of the tavern with the guys waiting for Happy Hour because they can't afford to pay the extra quarter full price for their Bud long neck.

And color me obsessed. I still think Franks' proposal was more aimed at gutting FICA receipts than any particular concern with reducing carbon footprints.

[anne]

Bruce Webb

People who think that $3.00/gallon gas is not enough but a $5.15/hour minimum wage is just dandy need to answer this question "Why do you hate working people?"

Brilliant :) There will be the coming conservative objective, to raise the price of gasoline to the minimum wage.

[Syaloch]

Every time I hear proposals like this I wonder what it is I'm missing. Frank, who's a proponent of a progressive consumption tax, suggests that we could get around the regessivity problem by making this tax progressive too.

Well yeah, maybe. But why not just raise CAFE standards? Say, to levels required in China? Wouldn't that acheive the same ultimate goal without the regressivity or the overhead of moving all that money around?

As for the "poor don't drive SUVs" argument, well yeah, maybe they don't, have you shopped for a car recently? My wife and I set a goal when we replaced our two cars a couple of years ago that they should each get at least 30 mpg on the highway. It turned out to be a lot harder to reach that than I'd thought -- there were disappointingly few cars that met this criterion, and surprisingly little difference in gas mileage between cars, minivans, and SUVs.

[anne]

Svaloch

Well yeah, maybe. But why not just raise CAFE standards? Say, to levels required in China?

There is irony :)

[save_the_rustbelt]

We put a man on the moon in about 8 years.

We have been fooling around with oil dependency for 30 years, and all we have managed to accomplish is to enrich a few people and jeopardize our national security.

Both parties have had a shot at this and neither has produced much in the way of progress.

So where do we get leadership?

[Bruce Webb]

"Every time I hear proposals like this I wonder what it is I'm missing. Frank, who's a proponent of a progressive consumption tax, suggests that we could get around the regessivity problem by making this tax progressive too"

Here is one thing you will always be missing. Any component which extends progressivity to the top. The Economic Right defines "progressivity" as "have the middle class pay for everything while exempting returns from captial from taxation" all while pretending they are concerned about the working poor.

Their goal is always the same, keep anyone from raising the top marginal rate and meanwhile lower their exposure (15% capital gains?).

[Tom Bozzo]

cm: Around here, road salt turns most of the really old pieces of junk into iron oxide, so it's odd even to see beaters from the mid-eighties. Thing is, many of those beaters are relatively fuel-efficient (e.g., domestic mid-sized front drive sedans from the eighties, which were sold in vast numbers with fours that offered the pick-up of a dead moose, but were reasonably economical). It'd been a stylized fact of the car market that the upper classes buy new SUVs, and the lower classes buy used cars.

Syaloch: What segment of the market were you looking in? The 30 MPG target is not so hard to reach. Practically every mid-sized sedan (Accord, Camry, Altima, Passat, various domestics) is EPA rated at 30 or better, often even with sixes. My car (~5 months old, BTW) has a V6 and AWD, is rated at 29, and actually pushes into the low 30s on the open interstate. My impression of the occasional SUV service loaner has been that they do materially worse than their EPA ratings.

As for CAFE, the usual argument is that it doesn't do anything to encourage consumption in the existing fleet -- and depending on how the rules are written, it can have some perverse effects on the future fleet. CAFE is arguably the most politically viable automobile fuel conservation initiative in the U.S., and even it hasn't had the votes to strengthen. But since any gas tax-like system is pure fantasy, it's better than nothing. The main problem is that unless fuel prices drop sharply, the proposals to raise CAFE standards (modestly and slowly) are behind the market.

[Syaloch]

Tom,

I guess my problem is that I was looking at American models, because at the time at least they were the ones offering the huge incentives ($2,500 cash back, zero percent financing, preferred buyer incentives, etc.) and were willing to negotiate very good deals by phone. I like Hondas, but the Honda dealers were near me were charging a premium for comparable models and playing typical sleazy dealer games with the numbers (like saying I should pay an additional $1,000 above sticker for the cost of keeping the car on their lot).

I don't see why CAFE standards should be raised modestly and slowly. It's not a technical problem -- China's standard is already 40% higher than ours, and the standards for Japan and the EU are significantly higher than that:

http://tinyurl.com/r3zdy

Are our automakers really that uncompetitive?

[dryfly]

Maintaining 'cheap gas for everyone' because the poor can't afford the price increase ISN'T going to ween us off the oil addiction. Until energy is really expensive people will continue to practice the same consumption behavior they have always practiced - rich and poor alike.

For a guy working min wage $3/gal is surely a jolt. But frankly so is a $1.50/gal for those folks... when you have 'nothing' everything is expensive.

If you are really concerned about the poor - raise the min wages, provide more low cost housing & affordable mass transit, whatever. But if you are concerned about oil dependency, green house gases & spills in wild places - raise taxes on oil to suppress demand FOR EVERYONE.

And while raising CAFE is a great goal it won't have the same effect that a hit to the pocket book will. When oil is cheap people work around CAFE - drive more, move farther from work, etc. I been there, done that.

The 'poverty' and 'oil' issues are separate. And while considering the effect of a jack in energy prices on the poor is noble - the work arounds shouldn't jeopardize the goal of driving down oil energy consumption which will only happen if energy ceases to be cheap.

You will know when gasoline is 'expensive' - the behavior changes won't be 'marginal'. And contrary to reports it isn't too expensive yet - I just went on a long business trip via automobile (multiple sites all over the central US impossible to fly to)... truck stops & highways were absolutely CLOGGED with traffic. No different than a few years ago when gasoline was half as expensive.

[Richard]

What dryfly said.

The reasons that there are few public transit options available for poor people is that urban and rural areas are built around the automobile. In urban areas there is suburban sprawl that reaches farther into the "cheap land": poor people often pay a lower mortgage but have a longer commute. In rural areas, small towns are not as built up as they once were, again favoring sprawl.

If the pattern of land use is to change, there has to be a commuting cost to prompt it.

My fear is that price increases in thr future may not be gradual, and may someday spike up dramatically. Market signals work well when there is a gradual increase in demand which permits newly affordable alternatives to be tested and implemented. You don't have to believe in a doomsday scenario to imagine increase world usage and oil disruption in the Middle East all causing prices to rise substantially.

A tax on oil essentially hedges that vulnerability.

[Syaloch]

Dryfly, I don't think your arguments against raising CAFE hold water. George Will made the same argument in a column a while back -- raise CAFE and people will just drive more.

Drive more? Where else am I gonna drive? As you say, most people's driving isn't constrained by gas prices now; they pretty much drive wherever they want now. So how would improving CAFE standards make people drive more?

As for commuting to work, I'm already constrained by the time it takes in stop-and-go traffic, so why would I move further out and incur an even longer commute?

Sure, there's an argument for internalizing the costs of driving, but I don't think a highly regressive tax is the way to do this. It would put an unreasonable burden on the working poor who may not have a lot of alternative ways to get around. It also puts a burden on those who've invested in a house based in part on the cost of their. Land-use must change if fuel prices are much higher, but it can't change that quickly. Put in the low-cost housing and affordable mass transit first, THEN slowly increase the price of gas. But raise CAFE NOW.

[Syaloch]

That should read, "based in part on the cost of their commute."

[Syaloch]

"Poor people often pay a lower mortgage but have a longer commute."

And thus may be more severely impacted by a sudden jump in gas prices.

says...

About 1985, vehicle manufacturers became successful at limiting the push for tougher efficiency standards. The push had worked well before then, but after 1985 mileage standards stayed constant for 20 years. Economists of course decided that what is not tried will not work and so the idea that efficiency was possible has been laughed at by economists ever since. Possibly, economists are right and vehicles are as efficient as possible and our lvoe of technology will not work, but I am annoyed that mileage standards have not been toughened in a generation even as an experiment.

[anne]

Curiously, the post above was mine :)

http://www.nytimes.com/2005/08/16/business/16fuel.html?ex=1281844800&en=2d06f1360e161046&ei=5090&partner=rssuserland&emc=rss

August 16, 2005

Fuel Rule Change for Big S.U.V.'s Seen as Unlikely
By DANNY HAKIM

DETROIT - The Bush administration is expected to abandon a proposal to extend fuel economy regulations to include Hummer H2's and other huge sport utility vehicles, auto industry and other officials say.

The proposal was among a number of potential strategies outlined by the administration in 2003 to overhaul mileage requirements for light trucks - sport utility vehicles, pickup trucks and minivans. It had been seen by industry officials as likely to be adopted.

But the impact of the tougher requirements would have been borne almost solely by the increasingly troubled domestic auto industry, a concern for the administration.

Its broad plan to overhaul the light-truck mileage rules would change the regulatory system from one using averaged mileage for an automaker's entire annual light-truck output to one that sets up five or six classes, determined by a vehicle's size.

The rules, the first major rewriting of fuel economy standards since they were created in the 1970's, will be released late this month. They are sure to renew vigorous debate about the nation's dependence on foreign oil, a matter underlined by rapidly rising oil and gas prices....

[anne]

Huh???

http://www.nytimes.com/2006/05/03/washington/03cnd-fuel.html?ex=1304308800&en=3d13f2bc35548af6&ei=5090&partner=rssuserland&emc=rss

May 3, 2006

Mineta Urges House Panel on Fuel Standards
By JOHN O'NEIL

Transportation Secretary Norman Y. Mineta asked the House Energy and Commerce Committee today for the authority to revamp the system of fuel economy standards for cars, while Democrats insisted that President Bush could move immediately to require more efficient cars if he wanted.

Mr. Mineta acknowledged that the administration does have the right to "set the stringency of the CAFE standard," using the abbreviation for corporate average fuel economy. But he said the system should be changed more broadly.

"What we need is the statutory ability to reform the structure of the program," he said, to avoid problems with the current system. Those problems, he said, have hurt American automakers and endangered safety by forcing manufacturers to make more small cars.

Mr. Mineta said the system should be revamped to set different fuel standards for different sizes of vehicles.

Democrats said the proposal was meant to give the appearance of action on gas prices without actually changing policy....

[dryfly]

As for commuting to work, I'm already constrained by the time it takes in stop-and-go traffic, so why would I move further out and incur an even longer commute?

Syaloch I don't know where you live but where I live - outside the Twin Cities in Minnesota - it is not uncommon for folks to drive 50 miles each way to commute. I know folks who live almost in Iowa and commute to the southern suburbs of the Twin Cities... 70 plus miles each way. Also from western Wisconsin lake homes to the city... 70, 80 miles or more each way.

And this isn't just a local phenomenon. I do business with companies all over the US - I know folks who commute from southern Wisconsin to northern subs of Chicago (>70 miles)... from eastern Penna to NYC, etc.

Even my wife currently drives over 40 miles each way to work - at 60 plus mph in exurban Minnesota it takes way less than an hour each way, frequently shorter commute times than her peers who do suburb-to-suburb commuting on the order of 10-15 miles max.

As for CAFE - its no hair off my balls. We both drive 50 mpg Jettas so we are way out in front of the curve. Even with the miles we drive our fuel bill isn't too severe including the premium we pay for diesel (approx 20 cents a gallon).

When our last child is out of school we might locate closer to her work but right now it makes no economic sense to do so... our home is FAR less expensive than a comparable home in the city... gas is far too cheap to change this arrangement. On a micro scale its 'wage arbitrage'... she earns big city wages with small town expenses... at $3/gal, gas doesn't even factor in the equation.

This calculus goes on all across this country - I see it everywhere I go & it is increasing not decreasing.

Until gas gets expensive or housing closer to centers of employment gets more affordable - folks will be driving and doing a lot of it. If you don't belive me check out the traffic tonight on the edges of someplace like Atlanta, Chicago, Omaha, Charlotte, Dallas... or my hometown, the Twin Cities. It will amaze you how much folks drive... even with gas up around $3/gal.

CAFE increase is great but won't change behavior.

[Syaloch]

If CAFE won't change behavior, how can it lead to people driving more?

Besides, I thought the goal here was to encourage conservation of oil, not to "change behavior" to fight suburban sprawl or whatever. What's wrong with allowing people to live where they otherwise would, but using less fuel to do so?

Don't get me wrong, I'm as big a critic of sprawl as anyone. But imposing additional financial hardship on people who have to commute long distances to find affordable housing doesn't exactly sound like sound economic policy, does it?

[cm]

Syaloch: Re competitiveness vs. efficiency: No matter how far you push engine efficiency, at some point energy output and torque correlate with fuel consumption, displacement, and number of cylinders.

On big SUVs, trucks, and high-powered sporty or bulky cars it is more difficult to meet fuel/mile requirements, for simple physical reasons. With stricter CAFE standards you have to build/sell more boring "wimp" passenger cars, and that's the problem.

[cm]

Tom Bozzo: This is California. We don't have snow, hence salt is not much of a problem.

[dryfly]

If CAFE won't change behavior, how can it lead to people driving more?

CAFE isn't the problem and it isn't the cure - I don't care about CAFE... the people I know who are concerned about gas consumption tend to own cars now that have mpg well above CAFE averages (like me - 50 mpg) and those that don't care don't buy them even if they are out there (know lots of them who own vehicles in the 10-12 mpg range - they don't care).

But increase the cost of fuel enough and most all will care, care a lot... and make choices and change behavior accordingly in a way that really reduces fuel consumption.

Some will use mass transit, some move closer to work/school/play & drive less, others will choose more efficient vehicles... but regardless the changes will result in conservation.

But impose all the CAFE-like regs you want... if energy is still cheap people will find ways to waste it... rich and poor alike. They'll put off maintenance & drive wastefully (jack rabbits). And they WILL drive more & unwisely (single item milk runs). They will make decisions on where they live with everything but gas prices as a consideration. And if that isn't enough they will buy ATVs snowmobiles & yachts. All possible with cheap fuel.

But raise gasoline prices & all of that recalculates & changes.

I'd feel differently if there were NO choices or options available to people if prices went up but there are. I'd be ecstatic if there were more & better options (better mass transit, affordable housing nearer to commercial centers, etc.). But even with the imperfect choices out there now, people will find the solution that best serves their lifestyle & budget... but only when they have to and not before. Higher gas prices will make most of us have to.

[Bruce Webb]

"If you are really concerned about the poor - raise the min wages, provide more low cost housing & affordable mass transit, whatever."

Dryfly from your lips to God's ear. But the facts are that the Economic Right always suggests solutions to anything that suggest that the immediate solution is shifting costs down the ladder. If you really think Franks is balancing his tax boost on gas with a sincere claim for a boost for minimum wage, well show me the money. But they never do. At best they suggest solutions that shift the burden from the working poor to the middle class. While giving capital a free pass.

Have the holders of capital over the last 25 years ever promoted any policy solution to any policy problem whatsover that would increase the burden of taxation on capital? "Bueller, Bueller, Bueller". Throw me a bone here, show me a real deal. Show me a single time that Capital on its own iniative showed any sign of economic sacrifice that wasn't driven by worker resistance to them giving concessions while management gave themselves bonuses. "Bueller, Bueller, Bueller"

The notion that we an solve carbon footprint without confronting fundamental distortions in returns from productivity is really nonsense. Consumption taxes without addressing distributions from productivity are surrender.

I am not ready to make nice. And Supply Siders that insist that the solution is to shift consumption of any commodity to workers while ignoring distribution of returns from productivity is not going to get any traction from me.

"If you are really concerned about the poor - raise the min wages, provide more low cost housing & affordable mass transit, whatever." Well Boy Skippy, even boy skippy, but these guys want to raise the gas price now and visit the question of minimum wage never. Forgive me for wanting to reverse the polarity.

[dryfly]

The notion that we an solve carbon footprint without confronting fundamental distortions in returns from productivity is really nonsense.

I'm with you bruce on my resistance to make nice, not just yet. But increasing gas taxes might be where I compromise first - the compelling social good of real conservation could out weigh the pain & people could accommodate, even the poor. Accommodate easily with good policy crafted by leadership - less easily with the current crowd.

But the righties would have to throw me more than a bone to get it started. Its a moot argument. Won't happen until the bums are thrown out. That might be a loooong time the way the opposition 'opposes'.

[cm]

dryfly: bakho keeps making the point that rising gas prices will not effectively translate into fuel efficient vehicles, but mileage regulation will. I agree with that.

Neither will rising gas prices effectively translate into substitution away from car driving, e.g. to better public transit coverage. It will only affect marginal "discretionary" driving, unless people really have a hard time paying for gas, and have to skip or pool "essential" trips.

[Syaloch]

Dryfly, you're avoiding my point. How do you justify imposing additional financial hardship on people who have to commute long distances to find affordable housing? Do you really think that close-in affordable housing and mass transit systems will just magically appear if you make gas prices high enough? You don't see the wrenching economic implications of this policy?

Bruce, as usual you are spot on. Hit the working class with higher gas prices now, with a promise of affordable housing later. It sounds an awful lot like the basis on which freer trade was sold to the working class, doesn't it? See our host's recent post, "Waiting for a Piece of that Yummy Pie"...

Cm, I think we should let the car companies decide how best to meet higher CAFE standards. Smaller cars, alternative fuels (diesel anyone?), improved hybrid technology -- there are many options. But I don't think "do nothing" is a viable option here. If the alternatives were somewhat more "wimpy" vehicles, or a crushing economic burden on those who need to commute long distances, which would you choose?

[cm]

Syaloch: OK, I'm occasionally unable to convey my sarcasm properly. To restate my point more plainly, stricter CAFE standards mean, all else being equal, less high-powered and smaller/lighter vehicles, which have largely as much transport utility as SUVs/trucks as long as you don't have to haul your two big dogs on each trip, but don't convey nearly as much machismo.

[Syaloch]

Cm: Not necessarily. According to the report cited earlier, we can improve fuel economy 25 percent just by switching from gasoline to diesel. And we all know that real men drive diesels.

[Robert]

For internal combustion transport, why not tax engine size as a proxy for fuel efficiency - both initially upon purchase(say @$3 per cc) and annually thereafter (say $0.50 per cc), thereby relatively rewarding the "wise", civic-minded, choice, while still granting our libertarian kinsmen the masochistic freedom to punch the pedal of their 6-litre machine to the metal - albeit at price that attempts to reflect the negative externalities. Once legislated, it seems that the right tax policy would accomplish more than CAFE without all the interest-group fringe-whingeing.

One could ideally do even better where the "tax" is computed on both fuel-efficiency & emission. Those struggling economically would be greatly incented towards max efficiency (where there was little to no levy), whereas the taxes upon least efficient would scale-up with their relative inefficiency. Combined with more general, but less-heavy carbon tax, that raise the pump price (and thus regressively tax) only parsimoniously, this would promote desired efficiency, without unduly penalizing the poor.

[foo]

A side benefit of a gas tax would include continued equilibrium of the atmosphere and biosphere.

Snark aside. Reduction of environmental pollution and destruction disproportionately benefits the poor who do not have the wherewithal to barricade themselves from environmental hazards.
I believe this is the main reason that there are institutes funded by wealthy clients that are obfuscating evidence on climate change. It is not them who pay for environmental damage.

This basic economics argument needs to have the caveats that you describe at the end of your post incorporated into the diagram. Perhaps a background shift in utility associated with the state of the commons.

Anybody know of any economists who have thought about this pedagogical issue?