Gas Tax Now!
First Principles
By N. Gregory Mankiw
Many members of Congress have been pushing for a cut in income taxes, but they've been unsure how to pay for it. Fortunately, I've figured out an answer: with a tax increase. Let's cut income taxes by 10% and finance it with a 50-cent-per-gallon hike in the gasoline tax.
Yes, I know, this may sound like one of those pantywaist ideas only a pointy-headed Cambridge academic can love. But hear me out: By marrying the tax-cutting logic of the Republican right with the environmental concerns of the Democratic left, this might be a package that works for both.
Any would-be tax cutter faces a basic problem: Taxes are at a historical high as a percentage of national income, and the government is running a budget surplus, but cutting taxes somehow seems fiscally irresponsible. The explanation is that the impending retirement of the baby boom, together with the existing commitments to Social Security and Medicare, make the federal government's long-term fiscal position tenuous at best. The era of big government, rather than being over, as President Clinton once claimed, is very much with us.
The debate over tax policy, therefore, needs to go beyond arguments about the level of taxation and consider the mix. Unless we get serious about shrinking the role of government--which neither political party seems willing to do right now--taxes are going to remain high for the foreseeable future. Yet not all taxes are created equal. Some dampen prosperity by adversely changing the incentives people face, while others do the opposite.
http://post.economics.harvard.edu/faculty/mankiw/columns/may99.html