The Glory of the Feebate

Sigh. The Weekly Standard is right. The gas tax is actually a bad idea. I've advocated for it in the past, and many have done the same recently, but it's a poor way to deal with the energy crisis.

The gas tax fails because it penalizes folks for conditions outside their control. We generally imagine the tax as nailing those morons peering down from Hummers, but most of the affluent, insecure drivers who're purchasing a tank for their morning commute do so fully aware that the gas bill will sting. They can take the hit. But the gas tax disproportionately hurts two other groups who don't deserve it: the poor, and the rural. The former often drive inefficient, older vehicles, and are simply less able to use them when gas prices and taxes rise. The latter don't have public transportation options and often have to go much farther to complete basic tasks, like food shopping or taking their kids to school.

And all that'd be okay if there was some compelling evidence that a gas tax would seriously cut down on driving, but there isn't. Demand for driving is less elastic than we like to think, and it's been proving itself thus in the past few months. People's lifestyles revolve around the convenience of cars, and if they possibly can afford it, they will pay quite a bit to avoid slowing the odometer's daily advance. Unless we jacked fuel up to $7 a gallon, we're not going to seriously dent road habits. And since the only tax that's in any way possible a 25 or 50 cents, this'll be nothing but a regressive revenue raiser -- you're not going to solve the oil crisis.

But when trying to cut our crude consumption, it's important to remember that the problem is less how much we drive and more what we drive. The average consumer, when making a purchase that stretches far into five digits, doesn't usually think about lifetime costs. They're worried about the rebate they can get at the dealer, not necessarily a difference of five miles-per-gallon. So Explorers and trucks suffer very little -- normally, at least -- from their fuel costs because consumers are a bit near-sighted when evaluating costs. But that's what we need to be changing -- we can't wean ourselves off oil so long as Hummers and Explorers sell. And so the trick is incorporating long-term costs into the sticker price.

Now, your friendly neighborhood conservative will point to evidence that sales of gas guzzlers are slowing down already and tell you to sit back, have an iced tea, and let the free market take care of it. Not good enough, we need things to change now. If the government wants to do something to reduce our oil usage, start by slapping a serious feebate on auto purchases. Heavy cars and gas guzzlers get a $3,000 tax tacked onto the price, and hybrids and economy cars get a $3,000 rebate on theirs. Detroit gets a fat sack of money to move quickly and smoothly into the hybrid business, folks see the savings upfront and thus make more energy conscious car decisions, and we use way less fuel. No one, save those who need huge cars for their business, is hurt by circumstances outside their control. But even they'll only be temporarily penalized as the market will beg for fuel efficient trucks and SUVs (like the Ford Hybrid), and automakers will race to place them in showrooms.

So the Standard is right -- no gas tax. What we need isn't to penalize drivers for decisions they've already made or situations they have no control over, but to tweak the market a bit and bring long-term costs to the consumer's attention when they can still do something about them. A nice, fat feebate does exactly that.