Wednesday, February 11, 2009

W's economic advisor with a sensible stimulus proposal?

Greg Mankiw, a respected economist, Harvard professor, and former chairman of George W. Bush's Council of Economic Advisors, proposes an interesting stimulus that involves raising the gas tax. He's not as shrill as Paul Krugman, but probably just as smart. Here's one snippet, but read the whole thing for yourself.

I would institute an immediate and permanent reduction in the payroll tax, financed by a gradual, permanent, and substantial increase in the gasoline tax. I would make the two tax changes equal in present value, so while the package results in a short-run budget deficit, there is no long-term budget impact. Call it the create-jobs, save-the-environment, reduce-traffic-congestion, budget-neutral tax shift.I recognize that some state governments are now struggling in light of the macroeconomic crisis. For the next two years, I would let each state governor have the authority to divert a portion of the payroll tax cut in his or her state and take the funds instead as state aid. This provision would essentially be giving governors the temporary authority to impose a payroll tax on his or her citizens, collected via the federal tax system. Those governors who think they have valuable infrastructure projects ready to go would take the money. When designing a fiscal stimulus, there is no compelling reason for one size fits all. Let each governor make a choice and answer to his or her state voters. It is called federalism.

Why is the idea of imposing a gas tax always such a non-starter?