Taxes
- Posted by ryan on October 2nd, 2007 filed in Economics
According to a survey conducted by the Yale Project on Climate Change, Americans are very worried about the potential effects of global warming and want to see swift action taken, but are generally opposed to increased gas taxes or a carbon tax. This is particularly interesting, since the survey reports that consumers are willing to pay more for substantially more efficient vehicles, suggesting it’s not about an unwillingness to make sacrifices.
Personally, I think opposition can be explained almost entirely by lack of public understanding and by a real absence of any marketing of the idea. I expect that most Americans don’t grasp or get the notion that taxing something reduces the quantity of that something consumed; rather, I imagine the tax is perceived as a way to fund technologies that might fight climate change. And while wonks love carbon taxes, few politicians have embraced the policy, so few people are out there publicly making the case for such a tax. Of the Democratic presidential contenders, only Mike Gravel has really stood up for higher gas taxes, which isn’t exactly helpful to the issue. Of course, if only one of the front-runners embraced it, they’d probably be quickly skewered by his or her peers. It would be nice if Democrats could, as a party, get behind the issue, making it easier for individuals to speak out about it.
Thinking about it a bit more, though, I think that opposition also stems from the fact that most Americans can’t respond all that well to higher gas prices. If you just bought a house a 45 minute drive from your office, what are you going to do when a gas or carbon tax doubles your pump price? Hybrids aren’t cheap, and now’s not the best time to flip that suburban home. There are simply limited opportunities for most drivers to substitute away from driving. Which is yet another reason that we ought to be spending more on transit. Transit systems are helpful in reducing emissions outright, and they also reduce the level at which any potential carbon tax must be set in order to achieve results–as a good substitute for driving, transit makes demand for gasoline more elastic.
Listen: if we shifted 5 percent of the federal money allotted to highways next year to transit, it would more than double the federal transit budget. Is this not a trade-off we ought to be making?
October 2nd, 2007 at 3:33 pm
I think opposition can be explained almost entirely by lack of public understanding …
I think that opposition also stems from the fact that most Americans can’t respond all that well to higher gas prices
I would point out that the focus of your second statement reveals a symptom of your first. Americans in general equate a carbon tax with a gasoline tax. And as you correctly note, gas demand is relatively inelastic, so a gasoline tax will be a painful way to reduce emissions.
But there are other sectors where a price on emissions would make a substantive difference, and these tend to be overlooked by most Americans (that lack of understanding thing). Utilities will make very different capital investment decisions if coal power plants start costing 30% more to operate overnight. Wind or nuclear or other low-carbon generation will become much more relatively attractive.
Most people hear “tax” and just think about paying 10% more for their gas or electricity and correctly conclude that this won’t cause them to change their behavior a whole lot (maybe a little, but not much). But it’s the compositional effects in the economy that are the primary reason that carbon taxes would produce change. (In fact, in the transportation arena, a carbon tax might reduce emissions more through substitution towards a low-carbon fuel supply than it would through reduced energy use.)
Of course your main point that better transit options will increase the elasticity of gas demand is quite correct. Further, to the degree that a carbon tax is incentivizing more low-carbon power generation, the emissions benefit from transit will be even greater (provided that the transit is being operated on electricity).
October 2nd, 2007 at 3:38 pm
Excellent points.
October 3rd, 2007 at 11:08 am
“Which is yet another reason that we ought to be spending more on transit.”
You think we can build transit systems faster than we can turn over the car fleet?
October 3rd, 2007 at 11:16 am
Absolutely. There are plenty of ten year old cars out there on the road. More cheaply, too. And it’s not like the need to reduce emissions and congestion is going to go away in a decade or two.