Don’t Increase Federal Gasoline Taxes—Abolish Them

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Executive Summary

Many experts believe that gasoline taxes shouldbe increased for a variety of reasons. Their argumentsare unpersuasive. Oil is not disappearing,and when it becomes more expensive, marketagents will substitute away from gasoline to savemoney. The link between oil price shocks andrecessions, although real in the 1970s, has beenmuch more benign since 1985 because of the terminationof price controls. Market actors properlyaccount for energy costs in their purchasingdecisions absent government intervention.Pollution taxes, congestion fees, and automobileinsurance premiums more closely related to vehiclemiles traveled are better remedies for the externalitiesassociated with automobile travel than asimple fuel tax. Gasoline consumption does notnecessarily distort American foreign policy,impose military commitments, or empowerIslamic terrorist organizations.

State and federal gasoline taxes should be abolished.Local governments should tax gasoline onlyto the extent necessary to pay for roads when usercharges are not feasible. If government feels compelledto more aggressively regulate vehicle tailpipeemissions or access to public roadways, pollutiontaxes and road user fees are better means of doingso than fuel taxes. Regardless, perfectly internalizingmotor vehicle externalities would likely makethe economy less efficient—not more—by inducingmotorists into even more (economically) inefficientmass transit use.

The arguments advanced against increasinggasoline taxes are applicable to the broader discussionabout America’s reliance on oil generally.The case for policies designed to discourage oilconsumption is nearly as threadbare as the casefor increasing the gasoline tax—and for largelythe same reasons.

Jerry Taylor and Peter Van Doren

Jerry Taylor and Peter Van Doren are senior fellows at the Cato Institute. Peter Van Doren is editor of Regulation magazine and author of Politics, Markets, and Congressional Policy Choices (University of Michigan Press, 1991). They are contributing authors to Energy and American Society—Thirteen Myths (Springer, 2007).