THE COMING OBAMA TAX INCREASE

Steve Prestegard, at Marketplace Magazine, has out out a good piece on the impacts of Obamanomics. IF I ever ran for Congress or Governor, I may consider Mr. Prestegard for a position on the economic advisory team. He "gets" it...

http://www.marketplacemagazine.com/blogs/blog2.php/2008/10/20/the-coming-obama-tax-increase-1

Regular readers have noticed that I am skeptical that Barack Obama will cut the taxes of anyone, let alone the 95 percent of Americans he claims to want to cut. (Paid for by increasing the taxes of the readers of Marketplace.)
In fact, although Obama has yet to drop this bomb on us voters, I believe he has a specific, and large, tax increase in mind — specifically, an increase of at least 50 cents to $1 per gallon in taxes on gasoline and diesel fuel, either by raising gas and diesel taxes or by creating a new carbon tax.
There will be several rationales, beginning with the need for additional federal revenues (a rationale you may have seen before) now that the federally funded bailout will balloon the budget deficit. (At least on paper; there remains the possibility that, if the bailouts work and the feds are able to resell the assets they’re purchasing, the feds may actually break even. But Obama will not tell you that.)
This fuel tax increase also works right into Obama’s supporters’ energy and environmental interests — if you make something more expensive, people use less of it, as we all learned again this past summer. And since individual transportation gobbles up carbon and punches holes in the ozone layer, the more fuel costs, the less people will travel.
The unspoken rationale will be that our country did in fact survive gas prices exceeding $4 per gallon this past summer, and with gas prices having dropped below $3 per gallon, voters won’t care so much about going back up toward $4 per gallon.
This is not a new idea. You may recall that former Chrysler CEO Lee Iacocca and presidential candidate H. Ross Perot proposed similar gas tax increases more than a decade ago for budget deficit reduction. More recently, U.S. Rep. John Dingell (D–Michigan) proposed increasing gas taxes by 50 cents a gallon along with a “double digit” tax per ton of carbon dioxide emitted. Dingell sees a disconnect between people’s desire to reduce greenhouse gas emissions and people’s willing to pay to reduce greenhouse gas emissions.
Economists of most political persuasions will tell you that one of the most effective ways to reduce a particular activity is to tax it, or increase taxes on it. (Which means that Obama must want fewer people making $250,000 or more a year since he proposes to raise taxes on them.) So higher taxes on energy would certainly serve to reduce energy consumption, at least to some extent. Energy taxes are also a form of consumption tax, and it could be argued that a shift to a tax system more based on consumption than income might have some benefits.
Of course, such a tax increase would, as we've all discovered this past summer, make everything more expensive. Transportation-related taxes have particularly bad impacts on small towns, which in Northeast Wisconsin now serve as places to live for people who work in larger areas as much as communities with their own economies. If the economy goes into recession, businesses will not be able to pass that particular cost increase to consumers, and then we'll find out which businesses are well-capitalized and which are not.
It is wrong to take taxes for a specific activity (in this case, transportation) and then use them largely for non-transportation uses, such as budget deficit reduction. Government uses taxes for social policy as well, and this is wrong too; it could be argued, for instance, that allowing people to write off mortgage interest gets people to buy houses when renting might be more appropriate for their finances.
Moreover, there is no real evidence that a gas tax increase would depress worldwide demand enough for us to not enjoy the usual summer gas price increase. Gas prices go up in the summer because demand for gas goes up, with people vacationing across the world, and gas prices are based on oil prices, and oil is a worldwide market. Add a U.S. gas tax increase of up to $1 per gallon, and by, say, Independence Day weekend we could be paying $5 per gallon, or even more.
Transportation is what allows goods to get from seller to buyer. Making transportation more expensive through higher gas taxes will have a direct effect, and not a positive effect, on the economy. As with all such tax increases, it will have a negative effect particularly on people at the margins; it may not affect you, and it won't affect President Obama or our federal elected officials, but it will affect your employees, and particularly your lower-paid employees. (And the poorer one is, the more likely one is to own an older car with lower gas mileage.)
A steep gas tax increase is an idea that would make a large constituent group of Obama's, environmentalists, happy. I predict a gas tax increase will happen, and fairly soon, sometime in the first half of 2009, with Obama hoping taxpayers won't remember by election time why gas costs between $5 and $6 per gallon.