Cure for Middle East oil shock? A higher US gasoline tax

A gradual increase in US gasoline taxes would bring a host of benefits, from deficit reduction to cleaner air to less reliance on autocratic nations. But Congress needs a long-term view to take this step now.

Markets dislike uncertainty. And the Middle East, home to about one-third of the world’s oil production, has just entered an era of wild uncertainty.

Whether even more powerful political shocks are ahead can’t be known.

Now is the time for a calm response – including a recognition that short-term US petroleum supplies are in good shape. The market seemed to realize that on Friday when US oil prices dropped back below $100 per barrel.

But the Mideast political shocks should energize a rethink of America’s energy future.

Politicians, who reckon in two- or four-year election cycles, often see little political gain in taking the long view on energy security. It’s up to the public to demand it from them.

The quick reaction to the recent jump in oil prices has been predictable: Tap the US strategic oil reserves, some say. Or, step up “drill, baby, drill” off American coasts.

But neither reaction adequately deals with the far more significant need to drastically cut oil consumption. Whether the end of the world’s oil reserves is in sight – or decades away – it is coming. Paying for the inevitable shift now is wiser than waiting.

The best way to do that is to raise the gasoline tax gradually over coming years.

The case is clear: When gasoline prices spiked above $4 per gallon in 2008, consumer behavior was noticeably different. People drove less, telecommuted more, and looked for other means of transportation.

But many consumers also held back making fundamental changes, such as moving closer to work or replacing their SUV with a gas-sipper. Why? They were not convinced they had seen the future. They knew prices may drop again. The same is true for businesses.

The current tax rates on fuel, both federal and state, are already inadequate to pay for needed road maintenance and improvements. And with millions of electric cars expected to be on the highways in coming years, such a user fee based on fuel consumption will become unfair. The tax needs to be used for other purposes, such as reducing oil dependency or as revenue for lowering the federal deficit.

A higher gas tax would send a signal that the US is ready to lower its reliance on foreign oil, giving it more leverage to deal with autocrats in oil-exporting countries, such as Saudi Arabia or Iran. President Obama’s tentative approach to the Arab uprisings may have been in part caused by his worry about stable oil supplies from the Middle East. Democratic movements in some Arab countries may have suffered for it.

The certainty of higher gasoline prices through a stiffer tax would also help investors make the necessary long-term investments in alternative energy sources which, in turn, would reduce carbon emissions.

The political will to increase the US gas tax is far from evident now. But a grand deal on overall spending and taxes is possible later this year in Congress. And given the Middle East turmoil, raising the gas tax now might be one of the easier compromises, and a logical way to reduce imports of oil.

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