The Washington Post reports that the U.S. Chamber of Commerce is preparing a lobbying campaign in support of a 25 cent per gallon increase in the federal gas tax as a revenue source for federal infrastructure spending. The chamber believes that such an increase would raise about $375 billion over the next decade, which would be more than enough to cover the shortfall in the highway trust fund and support a couple hundred billion of new spending.
The announcement was met with some eyerolls from carbon tax advocates on Twitter. After all, how does an increase in the gas tax (used then for productive spending) differ substantially from a carbon tax? A carbon tax levied at $25 per ton of CO2 would also increase gas prices about 25 cents per gallon. It could also raise a lot more money for a similar price increase.
Emissions from transportation, which is almost all burning gas and diesel, account for about 27 percent of U.S. greenhouse gas emissions. But since most upstream carbon tax schemes for fossil fuels only apply to about 85-90 percent of U.S. emissions, transportation emissions would make up an even larger share of the base under a carbon tax. My back of the envelope calculations show it would be more like 35 percent of the base. So, under a carbon tax, for the same price increase at the pump, more revenue could be raised to spend on infrastructure. Or alternatively, the same amount of revenue could be raised at a lower rate by switching from a tax on gas to a tax on carbon.
A carbon tax would also result in higher social benefits because it would push down emissions much more than a gas tax will ever do. In their new book, Larry Gouldner and Marc Hafstead compare the relative merits of an increase in the gas tax and a carbon tax. They find that for a similar price increase at the pump, a gas tax results in 1/50th the emissions reductions of a carbon tax, because it is placed on a relatively narrow and inelastic base compared to the broader economy.
In tax reform, we just went through a large exercise is broadening the base and lowering rates to minimize costs and make the tax code more efficient. It’s worth considering carbon taxes for the same purpose.