Wednesday, February 25, 2004

Let's Wage War On Gas Guzzlers

Peter Coy in Business week asks the president to wage a war On gas guzzlers.

Two-thirds of the oil in the U.S. goes for transportation fuels, mainly gasoline. Inescapably, then, improving the mileage of cars and light trucks must be part of the solution. Yet you haven't asked Congress for legislation to increase standards for corporate average fuel economy (CAFE). The standard for cars is 27.5 miles per gallon, the same as in 1985. The standard for light trucks, including sport utilities, is scheduled to bump up to 22.2 mpg by 2007 from a puny 20.7 today. Is that really the best we can do?

The answer is yes and no. It is possible to bump up the CAFE standards significantly, although I doubt that you can take it as high up as 36 m.p.g by 2015 as Sen. Kerry proposed. Such an increase by 2020 may be possible, IF backed up by some incentives.

Don't stop there, Mr. President. People buy gas guzzlers because, even at today's prices, gas seems pretty cheap. If you really want to demonstrate leadership, ask Congress to raise federal fuel taxes by, say, 50 cents a gallon. Then return all the revenue that's raised to the public by cutting income taxes and giving tax credits to low-income households that don't pay income taxes. The net tax increase: zero. And what about subjecting SUVs and pickups to the guzzler tax on cars? Or ending the tax break of up to $100,000 for small-business owners who buy those hulking Hummers, Escalades, and Navigators?

Now you are talking. A revenue neutral scheme which increase tax on gasoline, but keeps the total tax burden on everybody the same (or even makes it more progressive). Fees for less fuel efficient vehicles and rebates for more fuel efficient vehicles (also revenue neutral). Such a "Feebate" scheme, coupled with modest (a few cents a year) tax hike for several years and more stringent CAFE can do a lot to reduce the fuel consumption of the US light-duty vehicles.


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