An Adaptive Gas Tax for California

As a California native and a small business owner, I’m a big fan of the California High Speed Rail project. Investing in transportation infrastructure will be vital not only for California, but to show the rest of the country how awesome it can be to have an excellent transportation infrastructure. High-speed rail will have short-term benefits (construction jobs) but I’m more interested in the long-term benefits to the economy. Having a fast, reliable way to get to LA by lunchtime will open up new business opportunities for Bay Area businesses.

The project is in trouble because insane Central Valley interests are screaming louder than the people who are for this, and the antidemocratic Republican minority in the legislature blocks funding for schools, much less new infrastructure projects. (This is the case even though we’re slated to spend 400% more on widening existing freeways during the time that high speed rail is being built — and for some reason, nobody’sĀ complainingĀ about where the money’s going to come from for that work.) Fortunately the project has a friend in Governor Jerry Brown.

I think that a temporary gas tax is one way to fund high speed rail, but you can credibly make the argument that gas taxes are regressive (that is, they hurt poor people disproportionately). The problem with that argument is that gas is a commodity and its price affects everyone (even if you don’t have a car, since gas is used to transport goods to market). But for whatever reason, you don’t ever hear people decrying the normal fluctuations in gas prices. So what if it were possible to make a new gas tax appear to be indistinguishable from the normal up and down fluctuations in the price of gas?

It should be possible to apply a gas tax over time (say, six to twelve months) as a way to soften the blow of a new tax — call it an adaptive tax. Since retail sales of gasoline are tabulated electronically, implementing this shouldn’t be too difficult. Say that the price of gas starts at $3.75 a gallon, and we’re looking to implement a 50 cent a gallon tax within twelve months. You start by applying a fraction of the increase (say, a nickel) in October or November, when the price of gas is naturally lower anyway. So after month 1, the price goes to $3.80 a gallon (although the retail price might not change at all because the underlying commodity price might have decreased during that time).

Then, each month you add between two and ten cents a gallon to the tax depending on the average retail pump price. If the commodity price is high, the tax that’s added that month is lower. If the commodity price dips, you can add a little more that month. When you hit the 50 cent a gallon goal (hopefully before the summer starts), you stop. The idea is to make the tax seem to disappear in the noise of normal fluctuations in the price of gasoline — we don’t want the price to spike all at once, but rather to be phased in evenly over time.

It’s conceivable that gasoline retailers would try to game this (by disproportionately increasing the pump price in response to the tax), but I don’t think that any one retailer has enough pricing power for this to be an issue.

Is this sort of a flim-flam? Yes, but most everything else in politics is, too. Will it soften the blow of a tax increase? Maybe. One way or another, it’s certainly better than the options we’ve got today.