a self-destructing gas tax

[was saving this idea for the Obama administration, but looks like I won't be getting the call, so just gonna float it on out there in the ether, as a New Year's gift to the U.S.A. Don't say I never gave you nothin...]

Have you heard about the self-destructing gas tax? It's green -- encourages energy efficiency; it promotes open and honest government by making it clear when the government runs up debts for future generations to pay; and it requires no new bureaucracy to administer. But best of all, it is self-destructing -- the first tax that automatically makes itself go away!

Why do we need a gas tax? We already have one, but it hasn't been increased in forever, and at just 18 cents a gallon it is no longer doing its job. As many others have noted, a gas tax is the best way to wean ourselves off of foreign energy sources, become more energy independent, fight global warming, etc (see, for example, Tom Friedman's recent article in the NYTimes).

Why self-destructing? It seems the government is always creating new taxes, making the tax code more complicated, but never getting rid of obsolete rules. So this proposed tax works until its job is done, then it goes away.

So how does the self-destructing gas tax work? Simple -- by indexing the gas tax to the national debt! That way, when the government acts irresponsibly, cutting taxes while increasing spending, the gas tax automatically goes up to help make up the difference. Of course, a few precautions would be necessary to avoid damaging the economy (particularly during recessions, see below). But on the whole this proposed tax would make the economy stronger, leading to greater energy efficiency, and lesser dependence on oil from unstable areas of the world. And best of all, when the country gets back in the black, the gas tax goes away!

Assume, for example, that the gas tax were indexed at 10 cents per $1 trillion of national debt. Since the national debt recently passed the $10 trillion mark (!), that would put the gas tax at just over $1 per gallon today. This is well above our current gas tax, and thus high enough to encourage greater fuel economy (but still well below that of many European countries).

If this tax had been in force during recent decades, it would have told us a great deal about the fiscal (ir)responsibility of recent presidents. For example:

• When George W. Bush became president, the tax would have been 57 cents per gallon, but due to his irresponsible tax-cutting while spending like a drunken sailor, the tax would have gone up dramatically by 49 cents, to $1.06 per gallon, and still counting (all figures based on data from the treasury). What better sign could we ask for that W. has been saddling future generations with debt at unprecedented levels?
• By comparison, Bill Clinton was also president for eight years, but the tax would have gone up on his watch by only 15 cents, from 42 cents to 57 cents per gallon. The economy was growing like mad back then, so we could have afforded it.
• Aside from W's presidency, the largest jump in the proposed gas tax would have occurred under Ronald Reagan, going from 9 cents to 27 cents per gallon. Not sure why some remember him so fondly; I remember him as the one who tripled our national debt! Not coincidentally, this was the last time the gas tax was even close to where it should have been.
  

So how do we implement this new self-destructing gas tax during an economic downturn? Very carefully.

Raising taxes is almost the worst thing you could do during a recession (reducing govt spending is the other). I'd suggest, first of all, that the tax be phased-in over five years. In 2009, for example, it would be indexed at 20% of the national debt, so it would be about 21 cents per gallon (or 3 cents higher than now). In 2010, it would go up to about 42 cents, and by 2013 it would be fully phased-in at more than a dollar per gallon (depending on future spending and taxing levels). I'd also suggest (for the policy geeks in the audience), that it be lagged by 18 to 24 months, so as not to interfere with the ability of the government to spend its way out of a recession. The price tag for the mess we're in now could well be trillions, and it would definitely help to defer that first tax increase by a couple of years.

Some time soon I'll suggest how to help out those impacted most by an increase in the gas tax; and maybe another idea about how to spend the money (like promoting energy efficiency and reducing the debt).

But for now we just need to get this thing rolling in the right direction. Fix the gas tax now!