Auto Execs’ R&D Proposal:
Lobby For Higher Taxes

From Benjamin Pacini on Thursday, November 5, 2009 4:52 PM

Auto executives in Detroit are suggesting that the best way to get more Americans to buy fuel-efficient vehicles is to gradually raise federal gasoline taxes.

Meanwhile, back in reality, Americans are suggesting that the best way to get Americans to buy more fuel-efficient vehicles is to invent one that is worth purchasing. They are sending their suggestions to the car companies here.

One more well-intentioned tax hike is the last thing that Americans, who are struggling with an unstable economy, need; and the Government’s track record on effectively addressing climate change is less than stellar anyway. Indeed, they have so far proven utterly incompetent at curbing emissions through programs such as cash for clunkers (which did little for the environment, and may have made it worse). As with clunkers, many are afraid that an increased gas tax would be more payoff for GM’s executives than protection for America’s environment.

These executives suggest raising the tax slowly, so that people can adjust. If the purpose is to force people into buying a more fuel-efficient car, why not implement the entire tax all at once? Isn’t adjusting just what we don’t want?

The reason why executives would prefer to do such a thing gradually, of course, is because a huge tax hike kills jobs and makes people very angry. Just think of the last time that gas prices went up to $4. People got really mad. And they kept buying gas.

Which brings up a second question—how high would we have to put gas prices in order to force people to stop buying? In Europe they are often four times higher than here. Will it get that high? If done gradually, will Congress promise not to ‘doc-fix’ this one?

There are many well-intentioned voices who advocate a pigovian tax of this sort—a tax meant to distort incentives, based on the notion that there is a negative externality on using gas. Increased size of government is a negative externality too.

As car companies are supporting tax hikes, they are inherently encouraging expanded government. As we have previously written, most ‘sin taxes’ are designed to pay for bigger government and use social welfare for cover. In other words, car companies lobby for higher gas prices (under the guise of helping the environment) with the end result of a job-killing tax on every American.

The only way that such a tax would be acceptable would be if it happened along with a reduction in other taxes by an equal amount. To those who would seek such a tax swap, we offer a warning: the tax expenditure lobby is uncannily adroit at bait-and-switch. Don’t be surprised if your pro-business, pro-environment revenue-neutral “cut corporate and hike carbon” tax plan turns into a “hike carbon, and use it to save America’s rivers” plan.

In sum, we have a suggestion for auto makers:

Stop advocating for higher taxes. Go make a fuel-efficient car that is worth buying. We’ll be happy to buy them once you do.

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