Time to Abolish, Not Increase, Federal Gasoline Taxes

Cato Scholars argue gas taxes are inefficient and unnecessary

August 7, 2007

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WASHINGTON — Higher gasoline taxes are often advocated as a means to pay for the costs imposed by drivers onto the rest of society, but the arguments in their favor are weak. In the policy analysis “Don’t Increase Federal Gasoline Taxes — Abolish Them,” Cato Institute senior fellow Jerry Taylor and editor of Regulation magazine Peter Van Doren expose the folly of increasing gas taxes, arguing instead that it’s time to get rid of them altogether.

“Environmental damages imposed on third parties are indeed a market failure,” write the authors. “Gasoline taxes, however, will have little effect on aggregate tailpipe emissions.” They suggest that if any action is to be taken, tolls, user fees, or direct taxes on emissions would be preferable to the blunt instrument of gasoline taxes. Yet they caution that even these measures are bound to have negative consequences. “[They] would likely result in some incremental increase in mass transit use, and that would make the economy less efficient because the economic distortions induced by mass transit are greater than the economic distortions induced by uninternalized motor vehicle externalities.”

Taylor and Van Doren dismiss the argument that taxes are necessary to conserve fuel. “Because the market value of assets is determined by what others might pay for them in the future, speculators represent future generations’ interests more effectively than politicians,” they write.

The authors also find that gasoline taxes are not needed to cover the costs associated with buying foreign oil. They argue that “gasoline consumption does not necessarily distort American foreign policy, impose military commitments, or empower Islamic terrorist organizations.”

Taylor and Van Doren conclude: “We find no compelling reason for a federal gasoline tax at all and call for its repeal. Fuel taxes are at best matters of local governmental concern and they should only be a fraction of current charges on motorists.”