Why We Need a Gas Tax, or Mass-Transit Insane-o Hatred From Congress

NEW YORK, New York -- President Barack Obama today signed orders asking the Environmental Protection Agency to grant California and 13 other states waivers to enact automobile emissions standards tighter than the national standards, drawing plaudits from the Governator and others.

Raining on the progress parade, however, was the noticeably unhappy and reputedly generally backward auto industry.

That much-maligned group of Detroit sneaks, lobbyists, engineers, executives and blue-collar workers may actually be worth listening to, however.

California's emissions standards would force cars sold in the state to cut current emissions levels by roughly 30% by 2016, four years ahead of a similar federal law. Automakers say that the requirement would cause them to build one set of (generally less-profitable and small) cars for California and another set of (generally higher-margin) cars for the rest of the country.

While emissions standards have a noble objective and it would be good for Detroit to produce profitable small cars (i.e., not the Dodge Neon), the Big Three are correct to point out fundamental contradictions in government policy.

The Neon: Not very gangster

On the one hand, Detroit is excoriated for not producing profitable vehicles; on the other, it's scolded for not producing small vehicles. The fact of the matter is that meeting these two demands creates a bind. Big SUVs are very profitable automobiles, and Detroit was actually very, very profitable in the cheap-oil days of the 90s and early 00s. Detroit is only doing the smart thing when it sells people SUVs. So do we want Detroit to be solvent or green? ("Soylent Green" is not the compromise answer.)

The issue is that reducing emissions is best done by giving cars better mileage. To reduce emissions by 1/3, average mileage would have to rise to 36 mpg, from under 30 now. To arrive at that average, an automaker could produce only cars making 36 mpg. Or it could also produce a number of unprofitable, smaller cars that it may fob off on fleet sales (companies, rental agencies, municipalities and others who buy in bulk) while producing a smaller number of what it specializes in -- high-margin, gas-guzzling SUVs.

And if a handful of states demand the 36 mpg standard while others don't, it means you can still produce lots of SUVs because some people can buy them -- but it's a mess to do so. So while you'd be an idiot for not producing profitable SUVs and trucks, you'd be forced to sell them only in certain places. A bit of a mutant case of government regulation.

Here's the bind: We want to be serious about reducing emissions. But we try to do it by saying this to Detroit: "You can legally produce the SUVs that keep your faltering balance sheets afloat, but we'll hate you for it. Get profitable, you lazy bums, but build unprofitable small cars, even though there will still be a market for high-margin SUVs and your competitors will slide into it."

That's a flawed approach. What we need much, much more than a patchwork of different state laws -- or legislators setting an arbitrary emissions standard even on a national level that would encourage a model of selling loss-leading small cars with enough high-profit SUVs and trucks to stay afloat -- is a gasoline tax.

The best way to ensure people and producers behave in an organic, market-based way is to simply make gasoline too expensive to waste. Every other First World country does it; why don't we? Implementing a gas tax, we would evaporate the market for SUVs as happened this summer. This would push the Big Three to make more fuel-efficient cars, without dangling the ever-enchanting prospect of a hugely profitable SUV market in front of their noses. The resulting tax dollars could be used to repair roads, build mass transit that is so sorely lacking, or even be cycled back into Detroit as loans, rather than putting tax dollars on the hook.

And it needn't even erode purchasing power by causing people to spend all their income on gas. As Dr. Evil prototype and all-around kook Charles Krauthammer suggested, Congress could introduce a $1/gallon gas tax and deduct from everyone's taxes the amount that the average American pays in new gas taxes. (Krauthammer's proposal deducted payroll taxes, likely to bankrupt that bane of neocons, Social Security, but if the money came out of income taxes, it would be pretty ideal in theory, if -- absent electronic gas transactions -- a mess come tax-declaration time.)

Sadly, every time a voter brings up the idea of a gas tax, politicians dismiss it as a "political third rail" that voters can't stand. Oddly, though, more and more voters seem to be pushing for it.

Meanwhile, there is huge demand for public transit as people grow more urban and for various reasons less reliant on automobile commuting, but less and less money for public transit, as the LA Times reports today. Meanwhile, Congress keeps letting us down by refusing to invest in mass transit, despite ever-increasing calls to do so (here's today's token plea). When Congress botches its best chance to turn around mass transit by selling it out to unwanted tax cuts in Obama's stimulus package, let's just hope it comes to its senses and secures funding for transit via a much stronger federal gas tax -- and that it finally stops offering Detroit Catch-22s in doing so.

So why aren't the politicians listening?