GUNTHER Portfolio: America needs a $1 per gallon Gas Tax

After Hurricane Katrina, I was shocked by $3 per gallon gas like most Americans. I was commuting two hours a day to work, and I needed two $50 fill-ups per week. Ouch! So why would I be crazy enough to recommend a hefty gas tax? The high prices encouraged me to combine trips and lightened my foot on the gas pedal. Overall, Americans responded by lowering gas consumption and helped bring supply and demand back into balance. Even SUV sales slowed as a result.

I experienced my first $50 gas fill-up in Europe. European gas prices are two to three times more expensive than the US because of consumption taxes. As a result, Europe uses half as much oil as the US on a per person basis. Even with a flat $1 gas tax, our pump prices would remain low relative to international prices. And like Katrina, the higher gasoline prices resulting from the tax would lower gas demand, reduce oil imports, and reward conservation. Increased conservation would create a virtuous cycle with fewer miles driven, more car pooling, reduced traffic congestion, and increased use of public transit.

In addition, I learned another tax trick from Europe. The Europeans use their consumption taxes to encourage the use of diesel fuel instead of gasoline. As a result, diesel costs 25% less at the pump than gas, and market forces encourage diesel fuel and car sales. Their rationale is simple; diesel requires less refining and contains more energy per gallon than gas. As a tradeoff, Europeans have decided to accept the drawbacks of diesel. Diesel cars are 20% more expensive, and diesel burns a bit dirty with particle emissions. While diesel might not be the best answer in the US, market shaping tax policies are enabled by a $1 gas tax. I propose using a similar consumption tax scheme to encourage the use of ethanol E85 (85% ethanol and 15% gas mix) with flex fuel vehicles. A flex fuel vehicle has an engine modified to consume E85 or gas but costs only $200 more.

How should the proceeds from the gas tax be used? Although Federal gas taxes have been spent to maintain our roads in the past, I believe the incremental gas tax revenues should be reinvested in renewable fuels and alternative energy technologies. Did you know The Energy Policy Act of 2005 mandates the doubling of ethanol blended with gasoline by 2012? While I support ethanol and other renewable fuels, there are some drawbacks to ethanol. So far, corn based ethanol has been more expensive to produce than gasoline, and it has less energy per gallon than gas. I believe the gas tax should fund the ethanol subsidies required by this mandate as well as renewable fuel production research.

An intangible benefit of a gas tax is what I call the security dividend. By lowering oil imports, the gas tax will promote the US goal of energy security and independence. In his 2006 State of the Union Address, President Bush said, “America is addicted to oil, which is often imported from unstable parts of the world.” Now that President Bush has admitted America’s energy abuse problem, the $1 gas tax is a first step on the path to facing this oil addiction. In general, I am opposed to new taxes and meddling with markets, but US dependence on imported oil has accelerated since the 1973 Arab Oil Embargo. I urge the US Congress to enact a $1 gas tax with bipartisan legislation. Islamic terrorists and belligerent oil rich nations would be sent a message. America won’t continue to be held hostage by our energy gluttony.