• Jul 6, 2009
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 than they would using 85% ethanol.

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.
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."



[Source: Wall Street Journal]


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  • 56 Comments
      • 5 Years Ago
      Here's an idea, how about a graduated (over time) gasoline tax? $0.10/gallon in year 1, $0.20/gallon in year 2, $0.30/gallon in year 3, and so on until some upper limit is reached (say $2/gallon in taxes).

      This would do several things: 1) it would ensure that the gas-purchasing public would know in advance that gasoline prices ARE going to rise over time -- meaning, that many people would have an opportunity over the next 5, 7, 10 years to change their purchasing patterns in advance of rising prices, 2) it would provide funding for alternative fuels research, infrastructure and mass transit infrastructure such as rail - assuming all of those taxes were indeed plowed back into research and development of same, and 3) it would provide car manufactures the same assurance as consumers, namely that gasoline prices WILL rise, so get "crackin'" and go design more fuel efficient vehicles.

      At 19.4 gallons of gas per barrel of oil and 21 million barrels of oil consumed in the U.S. per day, that's approximately 148 TRILLION gallons of gas per year (if my math is right). Every $0.10/gallon tax would produce $14.8 trillion in tax revenue (those numbers seem pretty large, maybe my math is off?). Having a hard time seeing how that kind of financial incentive wouldn't alter consumer behavior and provided a much needed boost to alternative fuels R&D at the same time.

      The present solution (mandated CAFE standards) places responsibility on auto manufacturers' shoulders (a bit too socialist for my tastes), while the tax would be gov't intervention, it would be intervention in a more free-market way. Almost a sort of incentive to buy fuel efficient cars.

      Problem is no politician would sponsor such a bill because no one wants to tell American consumers what they don't want to hear: you drive too frivolously and irresponsibly.
        • 5 Years Ago
        "Here's an idea, how about a graduated (over time) gasoline tax? $0.10/gallon in year 1, $0.20/gallon in year 2, $0.30/gallon in year 3, and so on until some upper limit is reached (say $2/gallon in taxes)."

        And if we started this genius move say, 10 years ago, we would have had $5 or $6 gas last year, when the oil price crisis initiated an economic meltdown. Keep your "genius" ideas to yourself.

        "Problem is no politician would sponsor such a bill because no one wants to tell American consumers what they don't want to hear: you drive too frivolously and irresponsibly."

        Most people drive just drive to work and back. The joyriding pretty much stopped when gas started getting over $2. Who are you to make these pompus judgmental comments? Why don't we hold the automakers responsible for providing a quality product that is good for the environment? Nobody suggests we should tax electricity so people will "be less frivolous", instead we mandate the plants have scrubbers and emission control tech.
      • 5 Years Ago
      35.5 mpg CAFE will kill GM. That's pretty much a no-brainer. People are just figuring this out now?

      Years ago the gov. should have added 25¢ a gallon and added a nickel or a dime each year up to a point. That would have forced us and our manufacturers to have more efficient vehicles. Spending on building and maintaining roads would have avoided our having some of these crumbling interstates.
      • 5 Years Ago
      Hang on guys... I have an even better idea, its crazy but it might work

      Give rid of the CAFE all together and let them build what they want.

      Just an idea.
      • 5 Years Ago
      I like the cars of big D however; i don't think the gov. should decide what kind of cars they build or atleast try to build or force us to buy cars we don't want. remember Gm did sell cars poeple wanted u don't sell the MOST any other way and ford does build trucks everyone wants u dont sell the MOST any other way and japan now builds cars we are forced to buy cuz the gov wont let us drill for oil or us other ways to produce energy and free up more oil for us to use. So it almost sounds like our gov likes japanese metal more than our own...
      • 5 Years Ago
      CAFE doesn't work. It never has and it never will, because it works on the wrong side of the supply-demand equation. CAFE doesn't work because it forces manufacturers to build cars that people don't want to buy.

      Here in the US, if fuel is cheap people want to buy larger, more powerful cars and trucks. It is only when fuel is expensive that people want to buy more fuel efficient vehicles.

      The demand for gasoline shows this price elasticity. In 2007, Toyota had incentives on the Prius. In June 2008, when gas cost $4/gal, the Prius was selling for over list price. Now, with gas back down at $2.65/gal, you can get a Prius at invoice.

      If, as a nation, we want to increase our fleet fuel economy, the solution that will work is a gas tax, as was demonstrated last year. Increasing the price of fuel changes what kind of cars people want to buy. In contrast, CAFE doesn't change what people want to buy. This gas tax should be phased in over time (say 7 years), giving people a chance to buy more efficient vehicles. To help lower income folks, there could be an income tax rebate.
      • 5 Years Ago
      Who needs CAFE at all? Let the people decide what cars they want. If gas gets too expensive, those who make more efficient cars will win out. And if people are willing to pay more to drive the same SUVs, then let them.
        • 5 Years Ago
        People will be freezing in their houses from not being able to buy heating oil before the rich have to give up their Mercedes-Benz AMGs.

        The free market may guarantee you can price anything, but it doesn't guarantee any kind of fairness. Causing people to have to go without heat at their house because fatcats want to drive fancy cars is a situation that many people won't stand for.
      • 5 Years Ago
      OF course automakers dont want CAFE standards, duh! Without CAFE standards they dont have to make vehicles more fuel efficient. They can just keep building gas guzzlers. Then you pay for it at the pumps with inflated pump prices. In Canada we pay way more for fuel when compared to the US. The funny thing is we supply the US with the majority of their oil. Not only that, in most cases we pay double. So we are already pay a very high tax on fuel. If the US doesnt enforce CAFE standards the taxpayer and the environment will pay huge!
      • 5 Years Ago
      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?
        • 5 Years Ago
        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.
        • 5 Years Ago
        "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.
        • 5 Years Ago
        "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?
        • 5 Years Ago
        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.



        • 5 Years Ago
        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.
      • 5 Years Ago
      Obama would never support raising gas tax, despite it being the only thing known to actually be able achieve his goals. It would be political suicide. That's why we have CAFE. A significant gas tax hike would be unlikely to pass congress, and if it did it would be effectively the end of the president who signed it's career.

      CAFE screws the automaker, and any ill effects will be the fault of the automaker in the average person's view. This lets the politicians look like they're doing something while avoiding the blame for it's bad side effects.
      • 5 Years Ago
      this isn't for the environment anyways... Mr. Obama needs money to spend!!!!
        • 5 Years Ago
        Yeah no joke, like a bunch of lawyers can fix the environment. When we get a handle on emissions, and when we turn the economy wrong, and solve all the other problems in the world, it'll be because of you and me, and everyone else working hard. Especially engineers and scientists innovating and creating new technology. It won't be because of Obama or congress, it'll be in spite of them.
      • 5 Years Ago
      Duh
      • 5 Years Ago
      "a higher gas tax would allow the Detroit automaker to keep building the cars it builds best"

      So in other words, crap? Yeah, not with my tax money invested in the "New GM". No way. I want them building vehicles that will not suck. I'm not giving them any incentive to keep making vehicles like the Enclave.
        • 5 Years Ago
        First, it's ugly as sin. Thats a subjective opinion, but I still think eyebleach is needed after looking at it. Secondly, it's a disappointment in every category, especially reliability. GM can make quality vehicles, that's for sure, but they haven't put that new level of refinement and dedication into the Buick line yet.
        • 5 Years Ago
        What's so bad about the Enclave?
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