Wednesday, April 16, 2008

The senator's got a gas problem

John McCain laid out his economic policies yesterday. He dropped his promise to balance the budget by the end of his first term in office and added a bunch of new tax cuts to his endorsement of making Bush's tax cuts permanent. So much for the fiscal responsibility he advocated when he voted against the Bush tax cuts before he decided to vote for them.

He's also developed a gas problem. He wants to suspend the federal gasoline taxes this summer, from Memorial Day to Labor Day. He's pandering appealing to voters who are bitter angry over high gas prices. We should be careful before mucking around with prices, though. The $.184 per gallon federal gas tax finances federal highway funding for states. It's also a form of a user fee for use of the publicly financed highways and a good tool to discourage energy consumption. A study by Resources for the Future, a Washington-based environmental policy think tank, concluded in 2002 that the optimal US gas tax would be about $1 per gallon, with the largest component of that reflecting the congestion effects of driving on crowded highways. Inflation would make that figure higher now.

Of course Obama and Clinton have their own gas problems. Both have endorsed federal subsidies for ethanol production, pandering, appealing to Democratic voters who mistakenly think that corn-based ethanol makes a significant contribution to improving the environment. Once you factor in the fossil fuels used to fertilize, harvest, and process the corn you get a small reduction in greenhouse gases compared to burning gasoline. Ethanol can also raise ground level ozone levels (smog) worse, although NRDC lays out a long-term (over several decades) strategy that could lead to reduced ozone with widespread ethanol combustion. I can also personally attest to about a 10% reduction in fuel efficiency from driving E10 (10% ethanol blend gasoline) around Illinois.

There's another agenda in promoting ethanol as well, pandering pandering (there's no cover here) to corn farmers in Iowa and other midwestern states, like Obama's home state of Illinois. And this causes a second problem: grain prices are rising sharply.

Corn prices first rose starting a few years ago. Then a lot of land previously planted with soybeans or wheat was planted with corn, reducing supplies of those grains and leading to rises in their prices too. High grain prices are now a global problem affecting poor people in developing countries. International aid programs are unable to buy as much food due to the high prices while more people are in need of aid because they can't afford to feed themselves.

Instead of trying to pick winners, it would be better to raise fuel efficiency standards for automobiles and raise the gas tax. I'd like to see the federal government commit to a program of slowly and steadily raising the gas tax. Raise it by $.02 every month for the next fifty months. That would push it up to $1.184 per gallon. It would rise slowly and people could plan ahead, knowing that high gasoline prices are here to stay. The additional revenue could be exactly offset by a cut in income taxes. Sell it to the public by saying "wouldn't you rather have your gas money go to an income tax reduction than to Hugo Chavez or the Middle East?"