Higher CAFE standards force manufacturers to build cars that get better mileage, or at least adjust the mix of vehicles they sell. In the decades since the first set of CAFE standards were imposed, we've gone from an average fuel economy of just 13.1 mpg to a less-awful 22.5 mpg. As time goes on, that value will increase, as the Obama administration recently set a target of 54.5 mpg by 2025.

Over time, we're getting more efficient cars, lower oil consumption per driver, and less pollution per car. However, while Freakonomics author Eric Morris agrees that raising CAFE standards does work to reduce oil consumption, he says that economists have known a secret for a long time: CAFE standards are only the second-best solution.

What's the better option? Increasing the gas tax. That way, consumers could choose to address rising gas prices in a number of ways, from buying more efficient cars to demanding better public transportation to simply driving less. At the same time, higher gas prices, as opposed to higher mileage standards, would result in less traffic, which would then cut infrastructure costs.

Increased gas taxes could also have immediate impact. They're not dependent on technological breakthroughs and not waiting for the millions of cars currently on the road to be replaced. Why wait until 2025, anyway?

Unlike most taxes, the federal gas tax was fixed in 1993 at 18.4 cents per gallon. That means the tax is not a percentage of price, so no matter how high the cost of gasoline goes or how high the cost of maintaining the highway infrastructure soars, gas tax revenues don't keep up. Also, compared to other developed nations, America's current tax rate is extremely low. It's too low to pay for federal highway costs, much less contribute to development of public transportation or transportation R & D.

We could fix that. According to Morris, economists are clear that gas taxes would be a more effective way of reducing consumption while providing flexibility to consumers. Why don't we do it? Because Americans won't support tax increases, even when they make sense.


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  • 38 Comments
      lne937s
      • 3 Years Ago
      I think Morris is ignoring the psychological impact of up-front costs versus costs spread out over time when evaluating incentives and disincentives. CAFE only penalizes $55 per mpg below the average per car sold. If your car company averaged just 10 mpg and the CAFE standard was 54 mpg, it would only add $2420 to the cost to produce the car. And that is ignoring all the credits automakers get- realistically, it would be far less. Compared to the price of the car or the price of lifetime ownership, that is a fairly small amount. By comparison, if that 10 mpg car goes 200,000 miles, the current 18.4 cent gas tax adds up to $3680 However, people balk at up-front costs. Residential solar, including incentives, easily pays for itself over the lifetime of the system, but most people are not willing to do it because of the up-front cost. Small monthly payments are more palatable than paying costs up front. A $0.50 cent gas tax would not dramatically change consumption. However, if you took the fuel economy rating and required a registration fee equivalent to what that tax would be every 100,000 miles ($5000 for that 10 mpg example), it would make people rethink their decisions. A few thousand at once would be a more effective incentive than the same amount spread out over time. Even better would be if you could base registration fees it on how many gallons they would be projected to consume over 50,000 miles, with actual consumption monitored and re-registration once that amount was consumed... but that would be a little more difficult to administer. Countries in Europe and Japan have hefty registration fees or vehicle CO2 emission vehicle taxes that charge people more at one time for thirstier vehicles. Such fees tend to have less total lifetime cost to consumers (some low-emission cars are even exempt), but offer a great psychological impact on buying decisions beyond the already high gasoline taxes in those countries.
      EVSUPERHERO
      • 3 Years Ago
      I am surprised any Americans ever supported going to the moon. I am sure that raised some taxes. Asking the people to sacrifice for their country is political suicide now days but their was a time when the president could raise that question. Instead we get the secret tax, raising food prices for ethanol and higher priced oil. Is that not a tax? The 22 corn senators have passed this tax for farmers, they make more and the public pays more for what they grow.
        throwback
        • 3 Years Ago
        @EVSUPERHERO
        We also had a surplus of funds during the moon race. We also had a enemy we wanted to beat, after they beat us to space.
          EVSUPERHERO
          • 3 Years Ago
          @throwback
          IMO we have a enemy, a enemy to our economy, oil restricts our economy when demand is high, demand is high in a good economy thus restricting the economy. We want and need to beat this enemy. What better way to save money by not giving it to the oil economy. EV's provide a efficiency 7 times greater than ICE no matter what fuel is used to power the ICE. Combat oil through efficiency and domestic clean energy. Stop sending money out of the country, stop making minute increases in efficiency by putting 30 speed transmissions in archaic conventional vehicles. Citizens were pumped in the 60's about not getting beat into space by Russians. We are getting beat on a much worse level, our standard of living is slipping away because we cannot adapt, improvise and overcome our addiction. The Russians power is surging once again as the world economy vise for oil and Russia has a fair amount. We have become a nation of soft spongy citizens that will do nothing unless it is more convenient. Pay now or pay more severely later. 911 was bad but the missile crisis made it look like a pimple on the face of the moon so I can see a president had it much easier time of getting Americans motivated back then and they really didn't have to sacrifice much to get to the moon. Truth be known driving a EV with 145 mile range is no sacrifice at all. They just need to be massed produced to bring the prices down and gas must be taxed so uneducated people know it will never be cheap again thus they are forced into alternatives that are more expensive up front but cheaper over the life of the vehicle. Long hall trucks should be given more time to switch to alternatives so the price of goods do not increase so dramaticly.
      Dave D
      • 3 Years Ago
      I don't want to raise the price of fuel in the middle of this economic slowdown either. I want to see everyone get a better job (or even any job). But we have to at least be able to have a rational discussion about it without everyone freaking out. We can't maintain the infrastructure we've got today, much less move improve it. There are ways to raise taxes and apply it to building other industries which are American vs. sinking our money into oil which we get mostly from foreign sources. It's possible the oil money drain on the economy is a much larger barrier to economic growth than a gas tax would be. Especially if that tax was spent developing more US resources, even natural gas. So I'm not just talking being "green" here, but just changing where we spend our money. If it happens to be green stuff like batteries for an EV industry...so much the better.
        throwback
        • 3 Years Ago
        @Dave D
        I think the issue for many Americans when it comes to taxes, is we feel we are over taxed already. The idea of paying more tax when we feel we are not getting our money's worth now, makes no sense. "It's possible the oil money drain on the economy is a much larger barrier to economic growth than a gas tax would be." That may be true, but our elected representatives have to make that case to us. I think most voters just have a lack of faith that our politicians have our best interests at heart. To me the best argument about reducing oil use is the National security argument. Trying to convince people we need to save polar bears when they are struggling to make ends meet, is a losing argument.
      harlanx6
      • 3 Years Ago
      CAFE has had little to do with increased automotive efficiency. The key factor is competition between auto makers.
      Derek
      • 3 Years Ago
      To everyone who says now is not the time: there is never a bad time to make a good investment, and there is never a good time to make a bad investment. Therefore, "now is not the time" is irrelevant. The gas tax is an inequitable way to pay for the roads. Because road wear is proportional to the fourth power of the weight of the vehicle but fuel consumption is only linear to the weight, people who drive larger vehicles should be paying many times more for the road wear than people who drive smaller vehicles. That means a Yaris owner subsidizes the roads for the Hummer owner. So let's fix that. Overbuilt parking lots encourage people to drive and overconsume limited resources. Minimum parking requirements are an inefficient, socialist solution to parking shortages. Let's replace them with demand pricing like SFPark or LA's ExpressPark. Overbuilt freeways also have the same effect. We could save a LOT of money through express tolling. The SR-91 express lanes "generate net social benefits of at least $12 million per year, compared with a scenario in which the lanes had been built but drivers did not pay to use them." http://preview.tinyurl.com/6bmk2wf I'd like my portion of the $12 million per year to lower my taxes, thanks!
      fairfireman21
      • 3 Years Ago
      Well let's see,,,,I can pay $1.00 more for a gallon of gas so I would use about $140 per month or down size and have a $600 per month car payment, I will stick with what I have, after all I would still have to keep it for towing. So insurance on 3 vehicles for one not to get used as often DON'T THINK SO!
      Jelly
      • 3 Years Ago
      54.5 by 2025 thats total crap, Ford have a Focus Econetic Diesel coming out next year in the UK that will average 83 MPG (Averages 69.1 US MPG).
      mylexicon
      • 3 Years Ago
      In 1999, gasoline cost less than $1 per gallon at the pump. In 2008, gasoline cost over $4 per gallon at the pump. We buy more gasoline per capita, commute farther per capita, own more vehicles per capita, and travel more highway miles per capita than we did in 1999. Why do some economists insist upon ignoring the basics of fuel demand in order to pursue personal ideology or fallacious logic? Increased efficiency correlates with increased total miles, but raising the cost of fuel is a very poor solution. The public has already demonstrated a willingness to dedicate larger portions of their disposable income for fuel costs. It is bad arrangement for personal utility and the economy as a whole since we import a majority of our oil. I have an economics degree, but I also have practical experience in don't-be-a-dumbass. In other words, I've read the Constitution. The Constitution and modern tax theory both stipulate that excise tax is not an appropriate way to pay for US infrastructure. The Constitution also says that regressive excise taxation (sumptuous tax) shall not be used to punish the lower/middles classes or the fixed income elderly. Inefficient bureaucracies will not be constructed to reverse the debilitating effects of regressive taxation (without offsetting increases in tax efficiency). Raising fuel taxes actually becomes self-perpetuating anyway. If taxation reduces demand, taxes must be raised to maintain revenues. Alternatives must be taxed as well. Federal taxation on electricity? That'll go over like a lead balloon. The best solution is to spend $20-$30B per annum in incentives and prizes to all producers and all consumers. Those incentives will reduce oil imports and increase economic efficiency (as long as demand subsidies aren't badly abused) in excess of the initial investment. If consumers or companies refuse to participate, we don't have to lock them in cages, ruin them financially, or kill them in order to maintain an orderly, peaceful society. If they refuse to participate, it costs the government nothing. With legislative incentives, fewer people lose their personal freedoms, and the deadweight loss to utility, associated with punitive legislation and its negative externalities, is never realized. Furthermore, the end goal is not to reduce total miles driven--we have no idea of the economic impact or the utility impact. Who cares how far people drive? The goal is to reduce pollution and oil imports while maximizing economic efficiency and personal utility. How does restricting total miles driven fit into that goal? These are the basics of modern, constitutional, market-based republics. If you don't like it, move to China. They will do anything to maximize economic growth and increase economic efficiency.
        skierpage
        • 3 Years Ago
        @mylexicon
        "The Constitution and modern tax theory both stipulate that excise tax is not an appropriate way to pay for US infrastructure. The Constitution also says that regressive excise taxation (sumptuous tax) shall not be used to punish the lower/middles classes or the fixed income elderly." Knock it off, the Constitution doesn't say that! Citation please. http://www.archives.gov/exhibits/charters/constitution_transcript.html
        Jeff Zekas
        • 3 Years Ago
        @mylexicon
        After taking economics at University, I came to one single conclusion: economists are totally clueless. There is no "free market", because EVERY country subsidizes its industries, either by manipulating the value of its currency (China) or using tariffs (Japan with its beef and agriculture protections). In fact, so-called free trade is what has allowed ALL heavy industry to leave the USA and be relocated in the third world... we ALLOW the Chinese to ruin our economy, just so corporate America can save a few bucks on every widget it sells... so now, the USA produces NOTHING, and we are in debt to the world's worst, totalitarian dictatorship.
          mylexicon
          • 3 Years Ago
          @Jeff Zekas
          Who said anything about free-markets? Who do you think discovered that markets weren't absolutely free? Clergy? Wherever you went to school, you wasted your money.
          mylexicon
          • 3 Years Ago
          @Jeff Zekas
          Furthermore, we did do something about China. The Bush administration devalued our currency, which ignited a cry-baby-fest from the know-nothings, and very deep concerns from the know-somethings. Devaluing our plan failed quite miserably b/c the Chinese matched us the entire way down. Their goods did not get relatively more expensive, and they became mercantilists too boot. They were ******* funds out of the West with predatory dumping, and they were using the surplus to buy up vast amounts of resources to counteract the problems with devaluing their currency. One of those commodities that the Chinese are seemingly willing to buy at any price (and underdevelop) is oil. The Bush economic team failed b/c they thought the Chinese were capitalists who wouldn't turn to mercantilism in order to continue their peg. In reality, China is a centrally planned technocracy with very little adaptability. When the US tried to force them to change, China simply stayed on the same path regardless of the consequences. Both the US and China are absolutely worse off as a result, but the Chinese didn't have to deal with the uncertainty of altering their currency peg.
        Spec
        • 3 Years Ago
        @mylexicon
        "In 1999, gasoline cost less than $1 per gallon at the pump. In 2008, gasoline cost over $4 per gallon at the pump. We buy more gasoline per capita, commute farther per capita, own more vehicles per capita, and travel more highway miles per capita than we did in 1999." If you are trying to say that our gasoline usage is not sensitive to price, you are wrong. Gasoline is very inelastic (we do all need to drive to work), but it does have its limits. Since 2008, our gas usage has largely flat-lined. We buy more efficient cars and we drive less.
          mylexicon
          • 3 Years Ago
          @Spec
          Spec, price inelastic means "not sensitive to price". Oil demand is obviously price inelastic, and that's why demands for higher prices (to manipulate demand) are so beguiling. It is about policy and government revenue, not about economics or people. Furthermore, demand models do not accurately predict the elasticity or inelasticity of demand at various points b/c the demand model doesn't adjust for volatility. At some point, volatility of income and volatility of price create a negative emotional response, but we have no way of knowing precisely what it is. In this instance, high prices mixed with a sagging economy have paralyzed people with fear. They can't afford gasoline and they can't afford the alternative energy necessary to maintain their current consumptive patterns. Downsizing is really the only option as long as the economy continues to falter, but they don't want to downsize. They bargain instead, and they latch on to any nonsensical idea that might reduce their fuel bills without altering their behavior. Raising the price of gasoline is only going to make people less predictable and inject more volatility into the markets. Currently, there is no utility associated with downsizing b/c downsizing isn't profitable for most of the current manufacturers. Competition would actually remedy the market-failure, but the automobile industry is one of the world's biggest industrial oligopolies with the highest upfront capital investment, the most protectionism, and the highest barriers to entry. As I said in the original post, this is one of the few instances in which a catastrophic market failure can be addressed with Federal money, and it can even be done in the name of national security.
      Sasparilla Fizz
      • 3 Years Ago
      Right now we have gasoline nipping $4 a gallon, where it is vacuuming massive amounts of disposable income out of the economy - its one of the underlying reasons we are having little to no recovery. Any politician talking about raising the gas tax in this environment would be crazy. The market (worldwide demand) is increasing the price of oil / gasoline much faster (over the last 5 years) than any tax increase could do - and presumably will continue to do so in the future. The idea of using gasoline tax to reduce consumption is an ivory tower fantasy at this point - the market will keep bringing its average price up in the future (allowing for recessions resulting in drops in demand that would give occasional price drops).
      Marco Polo
      • 3 Years Ago
      The Us certainly has the cheapest gasoline in the industrialised world. The question of an increase in Gasoline Tax, unfortunately involves very widespread increases in prices throughout the economy. In theory, a US gas tax increase would solve many problems, starting with US debt. In reality, it may prove an economic disaster. Difficult decision for any government. Far beyond the capacity of weakened President, and a Congress fragmented and solely interested in political expediency. It would take a Bobby Kennedy to persuade the US people to make such a sacrifice for the public weal, and those days are long gone.
        Jeff Zekas
        • 3 Years Ago
        @Marco Polo
        Americans won't sacrifice, cos everyone who lived through The Great Depression has passed away... they (my parents and grandparents) made GREAT sacrifices, after 1929 until 1945... here's an idea: put a $2 a gallon tax on gas, and NO TAXES on diesel fuel for long distance truckers... thus, transport is supported, but casual drivers are forced to be thrifty. Now is the time to build bullet trains!
          mylexicon
          • 3 Years Ago
          @Jeff Zekas
          The Greatest Gen and Baby-Boomers politicians have stacked an entitlement debt upon their descendants that we will likely never be able to pay off or inflate away. Democrat socialists supposed they could tax the rich heavily to pay for the entitlements. It failed miserably so they raised FICA taxes on the middle class. Republicans imagined they could stimulate the economy to new heights to pay for our entitlements without making reforms. It also failed. We have no direction and no plan b/c the oldest generations have shot their wad and taxed their meager intellects to the breaking point. Barack Obama is the first Gen X president to sit in the oval office, and he ran a campaign of hope and change with a relatively interesting platform, but he is apparently just a lackey for the silly flower-power universal socialism that we tried to snuff out over 3 decades ago. The Greatest Gen and Baby-Boomers are the problem. Gen X & Gen Y have already made a huge sacrifice by agreeing to pay for their self-aggrandizing entitlements and ludicrous deficit expenditures, even though we didn't get to enjoy much of the party. Even now, you try to cripple us with higher middle class taxes to ease your own conscience. You and your gen are sadists.
      EVSUPERHERO
      • 3 Years Ago
      Higher gas prices are coming, it is just a matter of a controlled tax that goes to our country or a uncontrolled tax dictated by supply and demand which OPEC has a big part in controlling. Americans need to know gas will continually be more expensive via a annual tax increase, instead of hunkering down and waiting for gas prices to decrease each time they spiral out of control. We tax it and it benefits our country, we maintain the status quo and it benefits OPEC and the oil corps that deal with OPEC.
      Smith Jim
      • 3 Years Ago
      I think the following article is quite an eye opener. http://www.grist.org/article/2010-12-15-if-efficiency-hasnt-cut-energy-use-then-what
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