Burning gasoline is ruining the world. It accounts for 40% of greenhouse emissions, and a large percentage of other nasty emissions including the particulate matter that kills millions each year. Getting it has driven the world to wars. When you burn it, you pollute my air, hurting me, and you owe me something for it, which is a reason that gasoline taxes make sense even in a libertarian context.

So while gas should be taxed to $5 or $6/gallon, the public won’t stand for it. So here’s an alternate idea. Tax gasoline up to $6/gallon in a revenue neutral way. That is to say, figure out how much tax revenue that raises per adult. Americans consume 140 billion gallons/year, so a $3 tax raises 420 billion (before consumption drops.) There are about 200 million adults, so this works out to just over $2,000 per adult. As such, each person (regardless of how much oil they burned) would receive a $2,000 tax credit — a refundable credit payable even if they owe no taxes.

Update: The core idea here came from an earlier comment on this blog, which I forgot about (See comments below for references.)

For people who ride transit or walk or otherwise don’t use cars, this turns into a $2,000 windfall, offset by an increase in the cost of taxis and transit. In theory, for the average gasoline user, it works out to a wash — pay about $2,000 more per year for your gasoline, but get a $2,000 tax refund. At most it’s an enforced savings program.

For heavy gasoline burners — those taking very long commutes, those electing to buy Hummers and Suburbans — it means paying lots more, and subsidizing those who don’t. Those who buy a Prius would be well rewarded, as would those who switch to transit or anything more fuel efficient.

The consequences of this would be:

• A giant and popular win for non-drivers, and for transit systems, which would get many more passengers to offset their increased costs.
• Everybody would file a tax return now, even those making little or no money. This would cost the IRS more, but they would probably love it for making everybody file. Not filing would become remarkably suspicious. This is both good and bad, of course.
• There would probably be some identity theft to try to steal the refunds, this would need to be watched for.
• It creates a major issue for illegal immigrants. Those who want to cause them trouble would like it for this, as these immigrants would now pay large fees for gas but have no means to get the refund, unless they file tax returns, which of course they are scared to do — and they have no SSNs.
• Fuel efficient technologies would become very popular and competitive, and the market would immediately start sorting out winners.
• Fuel consumption would drop, reducing the amount of the credit — or requiring an increase in the tax.
• Poor people with very long commutes could face serious problems, possibly forcing them to change jobs or homes, or try to carpool.
• People would drive into Canada and Mexico to get tanks of gas. There would also be a black market in gas smuggled from those countries.

This could be applied to all fuel use, including power plants and factories. In that case many products would increase in price, all offset by the credit.

Aside from the immigrant problem, it is also important to note how bad governments are at restraint, and there would be much temptation to not make the tax revenue neutral, and just make it a tax increase.

Would voters vote for this? Well, designed properly, if we assume that 50% of the gas is used by fewer than 50% of the people, then this is a win for more than 50% of the people, probably more than 70%. And of the top 30% of gasoline users, many of them would intellectually agree with it though it costs them more money. If people realized they would pay less, not more, under the tax, this could win voter support.

This could also be done on a state by state basis in some states. However, it would create problems on the state borders. Border gas stations would die, and need compensation. There would be a lot of smuggling from the other states. More people would risk using purple gas, as well. Enforcing is tough without some draconian system we wouldn’t like so much. It thus would be possible only in states that have few people living on their borders, mostly western rural states. California is not out of the question. It has no large cities on state borders, but does have some decent sized towns.

The positives of this idea are many, as are the negatives. But those positives are pretty valuable. In particular, this system would drive the market to work hard at producing technologies that really reduce fuel consumption, resulting in perhaps the biggest benefits of all.