The End of an Affair? Americans and Gas

Yesterday we posted on measures taken in the UK to minimize traffic and today we're happy to report that even the US has firmed up laws promoting frivolous gasoline use. Until recently a controversial loophole existed in the tax law allowing buyers of high-end luxury SUVs, to write-off the entire expense of the vehicle in the year of purchase. Essentially, the loophole was used by citizens in high income brackets to finance the purchase SUVs through tax breaks. Without this incentive we hope to see less of these gas guzzlers on our roads although additional tightening of the law may be needed before we see real results.

Could this be the beginning of a new trend in the US? Policy advisors, such as Gregory Mankiw, propose a substaintial raise US gasoline taxes. Mr. Mankiw, a Harvard Economics professor and former chairman of the Council on Economic Advisors, "would like to see Congress increase the gas tax by $1 per gallon, phased in gradually by 10 cents per year over the next decade." Even after this significant increase, the U.S. gas tax would still be less than half the level in Great Britain.

In a recent Wall Street Journal opinion piece, Mankiw lays forth seven strong arguments in favor of the tax hike.

Raising gasoline taxes "would be the most direct and least invasive policy to address environmental concerns" and have a positive effect on the environment by lowering carbon dioxide emissions. Road congestion, a problem in virtually all urban and suburban areas, would decrease. If the tax were imposed, the resulting $100 billion a year in government revenue would do wonders to patch up the "looming fiscal gap" as baby-boomers retire. He also cites regulatory relief, tax incidence, economic growth as a result of increased R&D; in gas substitutes, and national security as additional reasons to adopt the plan.

Whether or not the candidates in the upcoming Congressional election will take his advice remains to be seen.

:: Wall Street Journal

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