Greg Mankiw discusses "four keys to a better tax system" that includes an increase in the gas tax:
A good rule of thumb is that when you tax something, you get less of it. That means that taxes on hard work, saving and entrepreneurial risk-taking impede these fundamental drivers of economic growth. The alternative is to tax those things we would like to get less of.
Consider the tax on gasoline. Driving your car is associated with various adverse side effects, which economists call externalities. These include traffic congestion, accidents, local pollution and global climate change. If the tax on gasoline were higher, people would alter their behavior to drive less. They would be more likely to take public transportation, use car pools or live closer to work. The incentives they face when deciding how much to drive would more closely match the true social costs and benefits.
Economists who have added up all the externalities associated with driving conclude that a tax exceeding $2 a gallon makes sense. That would provide substantial revenue that could be used to reduce other taxes. By taxing bad things more, we could tax good things less.
The other three proposals are to broaden the tax base (no more mortgage interest deduction) and reduce the tax rate, tax consumption and not savings (no need for a radical change, just expand non-taxable savings accounts) and keep the tax code simple (avoid unintended consequences of goofy special taxes* and tax breaks).
Back to the gas tax, where does the $2/gallon come from? Is that the $1 increase on top of about a $1 federal and state tax? or has the optimal gas tax rate changed?
*My favorite is the yacht tax in 1990 (rich people will just pay more for their yachts,right?) that killed the yacht industry until it was repealed.
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