The Short Term Problem With a Gas Tax Increase: For Some, It’s Like an Oxygen Tax

Or, for you UK-ians, a petrol tax. By way of Mark Thoma, we come across an article extolling the virtues of increasing the gas tax:

Cars and light trucks produce about 15 percent of U.S. greenhouse gases. The best policy for reducing energy consumption from those sources, Knittel believes, would be higher fuel prices. “That would incentivize all the things we want,” Knittel says. “When gas prices go up, people shift to more fuel-efficient cars, they drive fewer miles, and insofar as there are lower-carbon-intensive fuels out there, people shift to them. They get rid of their clunkers faster.”

That’s not just an assumption; Knittel has studied the responses of auto owners nationwide to rising gas prices from 1999 to 2008 in another research paper, “Pain at the Pump,” co-authored with Meghan Busse and Florian Zettelmeyer of Northwestern University. The researchers found that with each $1 rise in the price of gas, purchases of highly fuel-efficient autos increase 21 percent, while purchases of gas-guzzling vehicles drop 27 percent.

A shift to newer, more fuel-efficient vehicles would actually help people in another way, besides releasing fewer greenhouse gases: It would reduce the amount of harmful local pollution in the air…

That produces significant health benefits beyond the problems associated with climate change. “We’re talking about asthma attacks and respiratory problems,” he adds. “This isn’t just a matter of helping the world two generations from now. You can point to this and say, ‘Here is a more immediate, salient reason for a gas tax.’” According to Knittel and Sandler, 70 percent of the costs of a gas tax of $1 per gallon could be recouped by immediate health benefits from reduced pollution. Other possible benefits from the tax — reductions in climate change, traffic congestion and accidents — could make it a net winner for people in economic terms alone.

I basically agree. But.

I remember when I was living close to the bone, in a crappy apartment 75 yards from the LIRR. If someone had told me that I would end up paying $300-$600 per year more in gas tax, well there is a problem: I couldn’t afford it (and we’re not talking about having to remove my kids from private school, but basic necessities). And I didn’t have a choice-my job was in suburban Long Island, and a car was every bit as essential as oxygen. It’s like that in many parts of the country. While we can talk about net gains, there will be some losers–and they will be those who can least afford it.

What I would do instead, although I think it’s even less realistic than a gas tax increase, is charge the gas tax up-front. Basically, assume a new car will be driven 120,000 miles at city mpg estimates, and add the dollar tax to the price of the new car (e.g., a car that gets 20 mpg would use 6,000 gallons, and thus be taxed $6,000 at time of purchase). This would, at least, give the financially strapped options while shifting us over to newer, more efficient cars.

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20 Responses to The Short Term Problem With a Gas Tax Increase: For Some, It’s Like an Oxygen Tax

  1. lynxreignlynxreign says:

    Wouldn’t your solution simply encourage people to keep their existing, less efficient cars longer? Making a new car more expensive would discourage people, especially those least able to afford the increasse, from buying a new car.

  2. Janne says:

    You could not rent a place closer to work? Or within 3km of public transportation from your home, then within 3km to your workplace? And you were never able to find a different job with better location?

    • Janne,

      No, I couldn’t: Long Island had a massive apartment shortage for renters. And the only public transit would have run $125 per month, taken an hour, and that’s only for getting to work. I would have literally been stranded if I had to get anywhere. And ultimately I did, and moved to Boston.

      • Janne says:

        It takes me an hour and ten minutes one way, and costs about the equivalent of $250 per month. Which is still cheaper than doing it by car would be, and the hour isn’t wasted as I spend it reading the morning news and studying.

  3. dr2chase says:

    Adding the cost to the car front-loads the expense, after you buy, the incremental miles cost less.

    A better choice would be to unbundle as many of the less-visible costs of driving (e.g., insurance) and fund them instead through a “gas fee”. You wouldn’t pay a yearly insurance bill of multiple hundreds of dollars, but you would instead pay $.50 to $1.00 more per gallon of gas. This would cover the legal minimums — if you wanted more (collision, comprehensive, boosted liability limits) you’d still deal with an insurance company. High-risk drivers might also need to deal with an insurance company.

    It’s revenue-neutral in theory, in practice it cuts driving and discourages use of large cars, because existing insurance billing is not per-mile, and is not as obvious as what you pay at the pump.

    Best would be a card swiper in the dashboard of your car, where you would buy credits by the mile, which are then exchanged electronically for gasoline when you need fuel, and repairs and maintenance when your car needs that (as much as possible, turn non-obvious expenses into obvious expenses). Heck, it could read CharlieCards. (You would also get a temporary membership in the transit workers union for the duration of your journey, with dues rolled into the charges 🙂

  4. pragmatic sustainability says:

    RMI – proposed an MPG feebate.

    Gas guzzlers paid the tax.
    Energy efficient cars got the subsidy from the gas guzzlers.

    That at least gives a subsidy for the poorer people who would be disproportionately affected.

  5. Constance Reader says:

    @ Janne:

    You’re joking, right? You do realize that the vast majority of Americans do not live in Chicago, Boston or NYC where such criteria are even remote options?

    The vast majority of Americans take the job that is offered, we don’t get to pick and choose based on their location. We move into the that we can afford and unless we are making six figures that is not going to be anywhere near our workplace. And most of us do not live in large urban centers that have public transportation systems of any kind, much less a system that is reliable. For example, in my home of Austin, Texas it is not unusual for employers to explicitly state that they will not consider candidates who do not have their own transportation.

    • Janne says:


      No, I’m not joking. But I was not as clear as I could be either. If a gas tax doubles the cost of gas, you would need to halve the amount of gas you use, in some way, or offset the cost in other ways. There’s many ways of doing so; the ones I mentioned are really the long-term changes you want to see people make over time as a result of more costly petrol.

      But there’s of course many things you can do in the short term, depending on your situation: Get a smaller, more fuel-efficient car; car pool with others in your area; work from home a day a week; consolidate trips in the family; don’t do long road trips and so on and so on.

      • Janne,

        You’re not getting it. In most parts of the U.S., you are housebound if you don’t own a car. Literally, everything requires the use of an automobile. In addition, I’m talking about people who already are getting screwed every which way. Even a few hundred dollars is too much–they will go into debt.

        Finally, lots of people don’t have the option of working at home: hell, I was in lab six days/week.

        • Janne says:

          “In most parts of the U.S., you are housebound if you don’t own a car. Literally, everything requires the use of an automobile. ”

          The problem is how to change that. People will not change their lifestyles for no reason. Communities will not invest in the needed infrastructure without incentives. A looming gas tax may be enough incentive to do so. Any tax is not going to come suddenly, but take years to implement. Enough time for people and communities to gradually adjust.

          And a tax has the benefit of being predictable. A sudden oil supply driven price chock has the same effect as a tax, except that is completely unpredictable so people have little time to adjust, and it won’t bring in revenues by which you can ease the adjustment.

          • Constance Reader says:

            Janne, in most of the U.S. you CANNOT change that. You can’t seem to grasp the fact that most of the U.S. *is not urban* or even surburban. “Infrastructure” is a moot point. “Lifestyle change” runs from impossible to insulting. For example, the area where I grew up still, in 2012, does not have cable television or high speed internet; it’s satellite or nothing. The drive to grocery store is 10 miles and many people drive half and hour or more to work, one-way. I’m told that some of the dirt roads I learned to drive have been paved since I left twenty-two years ago. These people absolutely could not afford a gas tax. Period.

            • Janne says:

              I grasp the fact just fine. The US is not the only place with a substantial rural population, you know – though about 80% is in urban areas it seems; a higher proportion than in Japan for instance. Other countries with large open spaces manage with far higher transport costs, and there is no reason the US cn not do the same.

              And after all, what else do you suggest? High gas prices is inevitable in your country as elsewhere, and the question is not how to avoid it but how to cope. If a gas tax – predictable, revenue generating – is not the answer, then what is?

    • dr2chase says:

      Not sure I’m going to add much productive to this, but I’ve done what I can over the years to make sense of how we might not use cars so much.

      First, Janne, there’s a good chunk of the population that is poor and rural. They drive too far because they can’t afford to live somewhere closer in, and they have no plan for when the price of gasoline spikes, and people in this country are thrilled to “care” about them to argue in favor of low taxes, but won’t do much else to help them out otherwise. When the price of gasoline spikes, they’re screwed.

      Also, outside of a few cities, transit is for poor people. It’s not nice, it’s not well maintained, and can be hot if the air conditioning fails (which happens). It comes very infrequently, so that the majority of your time might be spent waiting for a bus instead of actually traveling.

      On the other hand, “vast majority” overstates it. I spent some time poking through (2000) census data ( ). Over a third of us live in “census-designated-places” with more than 50k residents, and density of 2000/square mile or more. I live in a town of 25k, 4970/square mile, that does not make that list, so it understates the fraction of the population living in “dense” places. 2000/square mile is borderline dense, I think; the local bus lines tends to end in towns with that density. The majority may live in places that are too sparse for transit, but not a “vast” majority.

      There are other options besides cars. Small motorcycles are much more fuel efficient, so are electric scooters. I ride a bicycle to work some days; for the roads I ride (safe enough), and the age that I am (over 50), it would be foolhardy not to (hint: look at the mortality stats for cardiovascular disease and other afflictions of the unfit).

      • Constance Reader says:

        I tried the motorcycle solution. It doesn’t work in bad weather, in cold weather, or when I have to carry anything more than a purse or a backpack (groceries, laundry, etc.). Motorcycles/scooters are not a solution because they can not replace a car that can be used in any weather conditions, and can be used to carry large loads or more than one person.

        • dr2chase says:

          Oddly enough, I buy groceries, transport plywood, children, and other stuff, on the back of a cargo bicycle. Hot weather like you have in Austin would be an impediment, and torrential rains would be an impediment (I lived many years in Florida and Texas). But cold, that’s what clothes are for, and snow and ice, you can get snow tires for bicycles (you want the ones from Finland, with carbide studs). Understand, bicycles have a real comfort advantage in the cold — I pedal along producing 100-200 watts of power, which means 300-600 watts of waste heat. Actual snowstorms are fun to ride in, as long as you can stay away from the cars.

          The other approach to torrential rain is to save your lycra for that, and keep your cargo in a dry bag. Effectively, you’re taking a shower, and the lycra is there to keep you from getting arrested. It dries pretty quick once you take it off.

          On a cargo bike mailing list, one of the old-timers was pondering the possibility of converting a motorcycle to a long-tail cargo vehicle, because he was annoyed that he could carry more stuff on his bicycle than he could on his motorcycle.

          Here’s what I mean by “longtail cargo bike”: This bike gets at least 2500 miles per year of use, doing stuff I would otherwise use my car for. If it were not for kids and parental obligations, it would get even more miles.

  6. BioBob says:

    I know it may sound radical to many, but how about we ensure the rule of law, terminate all crony capitalism, and well intentioned (but market distorting) government efforts to force square pegs into round holes and let the FREE market do what it does best ? Get there first with the most.

    Government is supposed to ensure the rule of law, and free markets, not subborn them. And no, we do not have a free market in any way shape or form at the moment with OPEC (a monopoly), vertical petrochemical integration (a monopoly), absurd subsidies right left and center, etc etc.

  7. I have just read this post twice now, and as I am from the UK petrol price increases are only for one reason, to give the government more cash, The prices here have doubled over the last 10 years or so, It does not make people get smaller cars we already have cars half the American size,2ltr been our most popular high size car.
    It also takes money out of the normal working Persons pocket, who is going out to work earning money to put food on the table for their family. At the same time may I add that because of fuel price increases prices on food and everything else goes up to cover the cost of the original increase. Firms then start to make cut backs because they cannot afford to run deliveries or just that their suppliers have put prices up, so the normal working person gets the bullet, their gone, Onto the income support, The person then has to find employment all the firms they are qualified to work for could be out of town so they still need their car, plus they then find that the rate of pay has gone down ( the companies are trying to save money where ever they can, So they end up traveling more miles for less money and less food on their family table.
    Or option 2 try and find work in their own town, might be a small town and not many job available, wages are low.
    So that petrol price increase to dis courage people using their cars unless they have to in my opinion is the cause (or one of the causes of recession).

    Government and oil companies rake in millions of pounds extra but that poor worker is squeezed so tight the government might as well tax people to breath or for just been born.
    My website has only just got up and running, I didn’t think that I’d see such large numbers each day looking at it, I was expecting around 100 hits a week I’m getting more than that each day.

    Oh sorry I run a job advertisement site.

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  9. jtascensao says:

    Different objectives require different measures; gas tax is ok as long as other measures are taken to reduce the pressure over the more vulnerable segments of the population. Here in Portugal, such reform should start by moving the people from the periphery of the great cities all the way to its (increasingly) empty center. With the right institutional framework, gas tax increase should be common sense.

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