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Home / Jared Bernstein: On the economy / An important correction: The U.S. does have a carbon tax. But it needs some serious attention.

An important correction: The U.S. does have a carbon tax. But it needs some serious attention.

Summary:
I’m am avid listener to the NY Times podcast, The Daily, and I much enjoyed, if that’s the right word given the difficult topic, last Friday’s show on the urgency of pushing back on climate change. The show included an insightful discussion with recent Nobel laureate William Nordhaus on the importance of taxing carbon. But somewhere in there (not in the Nordhaus section), it was asserted that the U.S. federal government does not tax carbon. In fact, such a tax exists: it’s the federal gas tax. Given that this is the carbon-tax-that-time-forgot, I can understand the mistake (the reporter was probably thinking about more sweeping, new taxes on carbon emissions). But there are two strong reasons for raising it. One, to more accurately price the social cost of carbon consumption, and two, to

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I’m am avid listener to the NY Times podcast, The Daily, and I much enjoyed, if that’s the right word given the difficult topic, last Friday’s show on the urgency of pushing back on climate change. The show included an insightful discussion with recent Nobel laureate William Nordhaus on the importance of taxing carbon.

But somewhere in there (not in the Nordhaus section), it was asserted that the U.S. federal government does not tax carbon. In fact, such a tax exists: it’s the federal gas tax. Given that this is the carbon-tax-that-time-forgot, I can understand the mistake (the reporter was probably thinking about more sweeping, new taxes on carbon emissions). But there are two strong reasons for raising it. One, to more accurately price the social cost of carbon consumption, and two, to pay for our eroding transportation infrastructure.

The federal gas tax has been stuck–in nominal terms!–at 18.3 cents per gallon since 1993. It hasn’t been adjusted for consumer inflation, for the increased cost of transportation maintenance, for the improved fuel efficiency of today’s fleet, or for the slower growth over the past decade in total miles driven (see the figure below, showing a 12-month rolling average of total vehicle miles driven, in billions; people traveled a lot less in the downturn, such that miles driven are down by 480 billion relative to the pre-2007 trend; that’s good for the climate; bad for the trust fund coffers).

To be clear, those last two factors are roundly welcomed. But they also mean we’re collecting a lot less than we should be, which besides under-pricing carbon, is why a) the federal transportation trust fund is always broke, and b) our roads and mass transit suffer from persistent under-investment, especially in state that haven’t picked up some of the slack (the average state gas tax is 24 cents/gallon).

The tax analysts at ITEP do an excellent job of following this issue, but it is one that should be far more prominent. They calculate that to keep pace with the factors just noted, the federal gas tax today would need to be about 50 cents/gallon.

Since the federal gas tax was introduced in the 1930, this is the longest we’ve gone without raising it. Even President Reagan raised the damn thing (from 4 to 9 cents, in 1983)! As I document here, every once and a while, grown-up politicians propose an increase, often a bipartisan one. (BTW, as electric vehicles become more common–they don’t use gas; they do use roads–a per-mile user fee may be necessary to support transportation infrastructure).

As the Daily podcast stressed, there are policy makers who increasingly realize we must tax carbon, though especially in the age of Trump, they tend not to speak up much in this country. Moreover, it’s typically easier to add to an existing tax than introduce a new one.

Of course, I admit that it’s awfully hard to imagine a federal gas tax increase getting anywhere these days. But we’ve got to try, and we certainly can’t forget that it exists!

An important correction: The U.S. does have a carbon tax. But it needs some serious attention.

Source: DOT, Fed Highway Admin.

Jared Bernstein
Jared Bernstein joined the Center on Budget and Policy Priorities in May 2011 as a Senior Fellow. From 2009 to 2011, Bernstein was the Chief Economist and Economic Adviser to Vice President Joe Biden, Executive Director of the White House Task Force on the Middle Class, and a member of President Obama’s economic team. Prior to joining the Obama administration, Bernstein was a senior economist and the director of the Living Standards Program at the Economic Policy Institute, and between 1995 and 1996, he held the post of Deputy Chief Economist at the U.S. Department of Labor.

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