Whiskey Contributor

Richard Lugar, in the February 1 issue of the Washington Post , supported Charles Krauthammerís so-called net-zero gas tax idea .  This net-zero idea is an eminently fair and painless way to combat our looming oil crisis.  What makes the idea so great is that the taxes collected are given back to tax payers in the form of an income tax rebate.  And to sweeten the deal, the rebate can even be given before the tax is collected.

By artificially raising the price of gasoline, the net-zero gas tax uses highly effective market forces to channel usage and investment away from oil and toward alternative sources of energy.  This market-based approach demonstrated its effectiveness in response to the surge in oil prices last year:  gasoline consumption subsided and gasoline prices plummeted.  During the surge, it was the Saudiís pocketing the dough.  Net-zero puts the dough back into U.S. taxpayersí pockets.

The most compelling reason for a net-zero gas tax was neglected by Lugar and Krauthammer, though.  The fact is that, on a household-by-household basis, net-zero is actually ìnet-positiveî, and progressive.  This is because there is a strong positive correlation between household income and household gasoline consumption .  Thus the net-zero tax gives a net positive financial benefit to a significant majority of households, because households with the greatest income tend to be extravagant while households with the least income tend to be frugal.  The result is a financial windfall for a substantial majority of taxpayers, especially those with the greatest need.  This will then also serve as an added economic stimulus, with immediate and continuing benefit to the economy.

There is urgency in implementing this net-positive gas tax idea, however, because of accelerating declines in global oil production .  Oil prices (and political tensions) will escalate in response to the inexorable increases in the global demand for oil, most notably in China and the developing world.  Thus if a net-positive gas tax is to be imposed it must be done now, before natural free-market forces drive the price beyond our ability to bear an additional tax.  This in fact already happened, last year.  Fortunately, the current recession has given us a reprieve, one final window of opportunity it seems.  But we must act immediately to hold down the price of oil, or else prepare to open our wallets to OPEC.

Dr. George Doddington

Whiskey Contributor

Whiskey & Gunpowder occasionally features commentary from financial analysts, experts, gold bugs and an array of contributors from various fields and occupations. Their diverse insights and contrarians investing ideas are hand selected by your Whiskey & Gunpowder editors.

  • keithp

    Since the “rebates” will only go to lower-income households, this is just another wealth-transfer scheme, taking from those who are most productive in society and giving to those who are not. This will eventually lead to the further deterioration of our free market society into another European-style welfare state.

  • George Doddington

    I think you misunderstood. The rebates go to every household. Same rebate to every household. If you use little gasoline, you win big. If you use lots of gasoline, you lose. (And most of those who use lots of gasoline can well afford it and really don’t care.) But you still get your fair share, an equal share, of the excise tax imposed. The truth is that gasoline will once again cost $4 per gallon, then $10, then… We need only wait for declining supply to collide with increasing demand. But by introducing market motivation while allowing choice (not rationing), we can hold back the price longer, motivate the needed innovation faster, and as a side benefit also stimulate the economy by giving a net-positive rebate to those who need it most and who will be most likely to spend it. A nice triple win, I think. Don’t you?

  • Ool

    > This will eventually lead to the further deterioration of our free market society into another European-style welfare state.

    Yeah, and you wouldn’t want to turn into Germany, where people actually get to enjoy vacation time for their work, where there is a working healthcare system, and where at the end of the day there is a trade surplus rather than deficits as far as the eye can see. The horror!

    (I’m from Germany, in the interest of full disclosure…)

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