Would You Pay $1 Extra for A Gallon of Gas?
Jan. 31, 2006 — -- President Bush used tonight's State of the Union address to issue a dramatic call for more fuel independence and technology in America. But how might that call be answered?
Economists agree there is no simple way to wean the nation from oil.
Are Americans willing to give up reliance on gas-hungry cars and SUVs and move to smaller cars, or vehicles that operate on gas-electric hybrid technology? Would drivers accept a significant SUV sales tax or substantially higher gasoline taxes?
Cars, trucks and planes account for the majority of the U.S. oil appetite, 60 percent of the nation's daily oil consumption of 21 million barrels per day. Could the government use revenues from increased taxes to increase funding for research or create incentives for consumers and carmakers to move to more fuel-efficient technology? It's not likely to be popular with consumers, but new taxes could create hundreds of billions of dollars to address the country's dependence on oil.
The president's 2006 budget includes more than $400 million dedicated to various alternative fuel projects, including the development of a next generation of hybrids and a process to make fuel ethanol from cellulosic plant fiber. Bush's critics say that's far too little.
No matter what anyone says about reducing the dependence on foreign oil, solutions almost certainly involve sacrifices many Americans are not accustomed to making. So if the march toward fuel independence must be painful, what cost might Americans be willing to pay?
What a gas tax could mean:
Based on some simple calculations, a hypothetical $1 tax on each gallon of gasoline purchased in the U.S. would provide $140 billion in federal revenues. That money could be used to create incentive programs for carmakers to build more hybrids, and research the viability of all-electric motors and alternative fuels like biodiesel.
But that tax would also constitute a 44 percent rise in prices at the pump.
Would Americans go for it? One thing is certain; it would reduce consumption. That's what happened last year when gas prices hit record high.
In addition to driving less, Americans also purchased fewer SUVs last year to avoid the high gas prices. So would another large jump continue to discourage consumption?
"As an economist, I can think nothing else," said John Felmy, chief economist at the American Petroleum Institute.
Americans bought 4.1 million SUVs in 2005, according to Edmunds.com. That's down from 4.3 million in 2004.
The sharp jump in gas prices clearly discouraged SUV purchases, according to API's Felmy, so it's logical to think that any increase in the cost of SUVs might have a similar effect.
An aggressive federal tax of 10 percent to 20 percent on all SUV purchases would certainly bring sales down, but would have devastating effects in Detroit.
The real question is whether politicians have the will to pursue these sorts of changes. And do Americans really want them?
