TREEconomist

As gasoline prices have hit an ugly milestone average of $4 per gallon in the US, consumers are really starting to feel the pinch, especially in rural areas such as Mississippi where some are spending as much as 13% of their income on fuel. Some employers there have switched to 4 day work weeks to ease the pain from the pump, while some workers have found that it makes more sense quit and stay closer to home. Has the price finally reached a level that is changing behavior?

Charles Krauthammer believes $4 is the magic number where ‘everybody gets rational.’ He has proposed a tax in the past to establish a price floor at that level. If you don’t think it makes sense, consider that driving behavior patterns have shifted as a result of the increased prices, then think again. The government’s opportunity cost of not taxing gasoline, is all that additional revenue piling up at the Exxons and Shells of the world. If a tax was placed on fuel that is high enough to reduce demand (the price floor) then governments could capture that revenue to be ‘recycled back into lower payroll taxes.’

There’s just one glaring problem, TAX. It’s a ‘four-letter’ expletive, especially in a presidential election year, not to mention the high price of oil. Sound economic advice though it may be, a reality it will not. Increased taxes could be used to repair, improve, and expand the US public transit infrastructure, reduce greenhouse gas emissions, and increase productivity with decreased traffic, among other benefits.

Unfortunately for the likes of rural Mississippians, the trickle down effect of improved transit will be just a drip. They’ve got to eat, too. Increasing the gasoline tax could be political suicide, but sometimes the ugly truth must be swallowed.