WSJ Column: Higher gas taxes better strategy than CAFE to save GM
2009 Chevrolet Cruze - Click above for high-res image gallery
Ford Executive Chairman Bill Ford and AutoNation CEO Mike Jackson were just two voices that spoke out in favor of a higher gas tax earlier this year. While we took the Cato Institute's Alan Reynolds to task for muddying the waters of the "Toyota-licensed hybrid Fusion", there's reason to look deeper at his argument (published in The Wall Street Journal) which maintains that a higher gas tax isn't just a good way to encourage sensible car purchases, it also stands to be helpful in saving troubled domestic automakers like General Motors. Reynolds writes:
The federal fuel tax is highest on the most efficient fuel (diesel) and below zero on the least efficient fuel (ethanol). Cars get about 30% better mileage on diesel than on gasoline, and cars running mainly on gasoline get about 30% better mileage than they would using 85% ethanol.Since GM, already on the government dole, sells (proportionally) so many large vehicles, it will need to sell more smaller or diesel-powered vehicles to offset its truck fleet and to meet upcoming CAFE standards. Reynolds doesn't think CAFE is a good idea, and claims there's a better way to make sure GM survives. Reynolds says that a higher gas tax would allow the Detroit automaker to keep building the cars it builds best ("midsize and large sedans, sports cars, pickup trucks and SUVs"). Only by upping the gas tax and totally scrapping CAFE, Reynolds says, will GM not be forced to take even more money to survive – and to pay the CAFE fines it's sure to acquire. Doing so would also allow The General to not waste "more taxpayer money on 'retooling' to produce unwanted and unprofitable subcompacts and electric cars."
To stop distorting consumer choices, simply apply the same 24-cent-a-gallon federal tax to gasoline and ethanol as we do to diesel. This would add funds to the depleted federal highway trust. More importantly, it would remove an irrational tax penalty on buying diesel-powered cars -- arguably the most cost-effective way to improve mileage without reducing car size or performance.
Gallery: Paris 2008: Chevrolet Cruze
[Source: Wall Street Journal]
Reader Comments (Page 1 of 4)
Chillin.and.illin 6:48PM (7/06/2009)
just what we needed higher gas prices
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Quantumphysics 6:56PM (7/06/2009)
The government is determined to get back every single dime its lost...
...right out of our a55es
Tdogg 8:08PM (7/06/2009)
It could increase demand for Hydrogen fuel, which could bring back big SUV, V8s in every car, and lower prices on everything once its the major fuel scource in the US...
...but its not going to happen scince Big Oil can bribe the government to keep us addicted to our increasingly low oil supplies.
Swede 6:09AM (7/07/2009)
If you want to see any change then yes it is exactly what is needed. And 24 cents? Boo-hoo!
SimbaDogg 1:58PM (7/07/2009)
tricky situation if you ask me. whenever i drive around and see people in (mostly women, and by themselves) in excursions, burbans/yukon xl or xxl w/e it is, hummer h2s etc...it kinda makes me sick to my stomach. sure people should be able to drive w/e they want. but should people be able to be wasteful if they want?
my state (Cali) is actually in a really really bad drought right now, and i know in some places you can get ticketed for wasting water. but when it comes to autos, you can drive w/e u want, as wastefully as you want whenever you want. i just think its kinda weird. maybe it has something to do w/ americas past time love w/ the automobile, but its no surprise to me that america has some of the worlds largest land barges on the road. cars that people would never even CONSIDER driving in other countries (even ones where having full time 4WD is a must...i'm looking at you, excurision, h2, suburban, canyonero etc).
oh, and before someone chimes in and says what about us who live in snow covered winter cities in the north who need are big 4WD cars. i totally get it, but there's a huge difference between a jeep, a 4runner, a tahoe, and some of the aforementioned street battlecruisers. IMHO of course...
Edward 6:54PM (7/06/2009)
The higher gas prices are partially what helped GM hit bottom. Why would they want to impose a higher gas tax so they can build the same stuff? People don't have the money to purchase this crap. Wisconsin already has the highest state imposed tax. It would make buying a new car that much harder. GM will lose whatever customers they had to smaller, more fuel efficient, better engineered cars.
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Dave 10:15PM (7/06/2009)
Actually, higher gas prices are definitely better for GM than higher CAFE.
Toyota and Honda have more CAFE credits from prior years than GM.
And most GM vehicles get equal or better fuel economy than their Toyota counterparts and they are improving more rapidly. The Prius is an exception, obviously. But GM is adding affordable direct injection and 6 speed transmissions faster than anyone.
Edward 1:17AM (7/07/2009)
GM put all their chickens in one basket when they were pushing the GMT 900 series ( Yukon, Tahoe, Suburban) running 2 plants 2 shifts @ 50 hrs each a week.
The gas prices went super high and they lost their ass. If they are going to start bending the rules, everyone should get to play the game then.
polo 2:16PM (7/07/2009)
"Actually, higher gas prices are definitely better for GM than higher CAFE."
How many times has CAFE forced a 40% drop in sales? Well?
CAFE merely mandates GM do something they should already have been doing if they want to be viable company, which is invest in more efficient vehicles.
UtahAlumnus 6:57PM (7/06/2009)
Raising taxes on fuel to encourage car sales... Am I the only one who thinks this is ridiculous?
How about lowering taxes on deisel and gasoline to the rate taxed on ethanol, rather than raising tax on ethanol and gasoline?
Why do the most basic laws of economics escape so many people in this country lately?
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Farris 7:15PM (7/06/2009)
"Why do the most basic laws of economics escape so many people in this country lately?"
Good question. Tell me, oh wise one, how you intend to pay for highway construction projects with less tax money than there is now, which is arguably not enough as it is?
Polly Prissy Pants 11:02PM (7/06/2009)
"Why do the most basic laws of economics escape so many people in this country lately?"
Everybody loves "the most basic laws of economics" until they actually calculate the true cost of obtaining and burning a gallon of gas. Then economic theory gets a lot less attractive.
Nick 8:30AM (7/07/2009)
How about we lower the tax on diesel and then use the money that is going to a worthless war in Iraq and use it to fund the highway projects? We need to pull our troops out of there faster and here is motivation to do it.
Holden Miecranc 9:56AM (7/07/2009)
First off, when taxes are increased, tax revenue drops as people produce and consume less. It happens every time.
Here's an idea, how about instead of spending over $500 billion annually to support illegal aliens, we invest that money into our infrastructure. We spend far more on supporting illegals than we do / have the war in Iraq.
Flamespoke 12:10PM (7/07/2009)
I totally agree. The government already takes in enough money to do the business of the state. The problem is waste. The government doesn't need a penny more of Americans money.
If roads aren't getting built it's because someone screwed up.
Polarstar 6:58PM (7/06/2009)
How about proper budgeting and fiscal responsibility to ensure funds are in the highway trust.
Now about congress actually using those funds for their intended purpose.
The further the government digs into to our pockets to extract money the less efficient and more corrupt it becomes.
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joseph 7:05PM (7/06/2009)
Umm... don't they think of the people in rural America that HAVE to drive. And for this i blame the government because they started messing with the other mode of transportation... Rail Road.... So yeah lets all just kick back and watch them do the same with the auto industry so then we can idk take a jackass or elephant to work everyday and then they can figure out how to tax the gas coming out of their @$$
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HJC 2 7:17PM (7/06/2009)
Don't blame the government................ blame the STUPID people who voted for
the current administration
krische 8:00PM (7/06/2009)
@HJC
Yes, because the previous administration so much better ...
joseph 8:15PM (7/06/2009)
@krische
I don't think any of us should blame any of the admins. .... well i think we maybe can remember something called the New Deal the beginning of government trying to fix the economy and "help" the free market idea. I believe the gov. is like cancer if you give it room to grow it will take over. And man is this a dangerous cancer we have upon us now.