Want A Politically Viable Gas Tax? Make It Voluntary

Like Greg Mankiw, I think it’s a no-brainer that we should raise the gas tax. But it’s incredibly difficult to muster the political will to impose a traditional tax. (Witness California’s inability to increase the state gas tax by a measly 12 cents.)

Last year, Robert Samuelson (and a host of others) proposed a contingent tax that only kicks in when the price of oil drops — say, below $4 a gallon. I’m concerned that contingent taxes of this kind would just give OPEC an incentive to keep the price of oil just above the kick-in price. (Thomas Merrill and David Schizer have a detailed analysis of how the tax could work, why it wouldn’t enrich OPEC, and how the revenues could be rebated to the public to keep the tax revenue neutral.)

Proponents of a price floor originally hoped that the plan would be more palatable because it was basically a “tax more tomorrow” idea. But the idea was a lot more appealing before the recent drop in pricing — because now voters would see an immediate increase in their pump price. To be sure, after the fact you’re promised to get a lump-sum rebate (which, crucially, is not tied to individual consumption). But future (speculative?) payments are likely to loom small in the public consciousness.

Barry Nalebuff and I have just published in Forbes
a different way to make a gas tax more appealing. We suggest that the federal government whip up patriotic support for “independence bonds” that would pay you a lump sum of cash today if you agree to pay the government in the future an extra tax for every gallon of gas that you use:

The government would offer a $500 advance tax rebate each year for every car you choose to sign up for the tax. In return, you would commit to pay an extra $1 for each gallon of gas you buy. The actual tax paid would be based on miles driven and fuel economy. Thus a Chevy Impala rated at 19 m.p.g. would be charged $5.26 each 100 miles, while a Prius rated at 46 m.p.g. would be charged $2.17 per 100 miles.

For cars with average fuel efficiency (22.4 m.p.g.), you’d break even if you drove 11,200 miles a year. People who already drive their cars less or who drive fuel-efficient cars would be particularly likely to opt for the independence bonds. But even these folks would have a strong economic incentive to reduce their driving.

Readers of this blog will recognize this idea as another commitment contract (see also here and here) that people can opt in to to improve their incentives to reduce gas consumption. Indeed, people could enter into something very close to these commitments on my beloved stickK.com. I can imagine a day where an enterprising referee offers to give cash up front if car owners will promise to pay the referee for every mile driven (or possibly every mile driven above some pre-specified amount) in the coming year.

You’d be wrong, however, if you inferred that we came to this idea because of our work with commitment contracts. Instead, we dreamed it up by applying the “flipping tool.”

Barry Nalebuff and I love flipping ideas. In our book Why Not? we give dozens of examples of how existing ideas can be made better by flipping things around. For example, it would be easier to peel bananas if we flipped them around. If you look closely at this picture, an expert in banana peeling shows you how it should be done:


The flipping tool is how we came to the idea of a voluntary tax. Usually there are multiple dimensions of an existing idea that can be flipped. Consider these:

1) What’s the opposite of a rebate or refund?

It’s a “pre-bate” or “pre-fund.” Instead of giving taxpayers back the money after the fact, it makes a lot more sense from a behavioral perspective (and just a downright trust perspective) for the government to give them the money before the fact of the tax.

2) What’s the opposite of a war bond?

It’s an independence bond. As we wrote in Forbes:

Voluntary taxation seems like an oxymoron. No sane person would ever volunteer to be subjected to a tax. Yet about half the cost of World War II was financed by voluntary purchases of war bonds, which had a sort of tax built in because they paid below-market returns. Buying them was the patriotic thing to do. Bond rallies with stars like Rita Hayworth and Bette Davis generated mass support for “the greatest investment on earth.”

Because the plan is optional, high-mileage drivers and businesses that can’t afford the extra cost would be unlikely to sign up. But the history of war bonds suggests that, if marketed properly, independence bonds might be appealing to a large swath of Americans. Cars that were committed to conservation would also be eligible to display decals showing their patriotism in the fight for energy independence. The decals might also authorize use of highway lanes now reserved for buses and car-poolers.

People who claimed the rebate would need to have their odometers checked once a year to calculate the amount of tax owed. It’s fairly hard to roll back an electronic odometer. Odometer readings would be particularly easy in the 33 states that have federally required periodic vehicle inspections.

With war bonds, people paid the government money up front and were paid money from the government after the fact. Our independence bond flips the order of the cash flows.

3) What’s the opposite of G.M. offering to buy down the price of your gas if you pay them more for a new car today?

It’s lowering the price of buying a car, if you’ll agree to pay more for gas in the future. As we noted in Forbes:

In the spring of 2008, Chrysler promised to subsidize the price of gas to $2.99 a gallon for a year for anyone who bought one of its cars. Back in 2006 Hummer and G.M. promised that you wouldn’t pay more than $1.99 a gallon for a year. These promotions tapped into the same demand for lower gas prices that fueled Hillary Clinton‘s and John McCain‘s proposals for a summer gas-tax holiday. The problem with all these plans is that they subsidized people to drive more.

Conservation bonds are just the reverse: Participants are paid today for accepting higher gas prices in the future. A company like Toyota might even offer to match the government offer: Prius owners could get a $1,000 rebate if they promise to pay Toyota an extra 2.2 cents for every mile driven. While car companies might use conservation rebates to attract green customers, a call by our leaders to voluntarily embrace credible conservation would engage an even larger number of Americans.

4) And finally, what’s the opposite of a mandatory tax?

Of course, for me, it’s a voluntary tax. Unlike death, a gas tax for conservation purposes doesn’t need to be unavoidable.


#19 "The solution is higher taxes on cars with MPG under a certain threshold. You have different gas nozzle sizes like was done back in the day for unleaded and leaded.

Want to guzzle gas? Fine. You pay a premium."

And you make a market for someone to create a gas nozzle size converter that will allow you to use the cheapest gas. Plus the price to change this (along with fit all of the old cars that fit into the MPG with the size nozzle that goes with MPG).

The nice thing about a tax on gas is that it fits in well with the current system.

Chris K

To those of you complaining about the government putting a "tracking device" in your cars,
You're right: not only is this an invasion of privacy but it would be nearly impossible to implement the GPS technology needed to track and monitor how many miles so many cars are traveling. A simpler technology to keep track of how many miles a car has traveled must be developed for this sort of tax to work; perhaps something like a mile counter that displays right in the dashboard of every individual vehicle....


A reality check:

Government requires an administrative bureaucracy to administer the program. This administrative fund will go up over time and fund a lot of studies

After a few years, Congress decides the prebate should be based upon income and primarily help subsidize the purchase of cars (or insurance, whatever) for people who are too poor to buy their own.

If I'm wrong then sign me up for the 1975 model that is sitting outside my house and the second car that I don't drive much. But not my other car that I drive more, I'll just put most of the miles I drive on that car. I might even keep a fleet of spare Junker cars as prebate bait.


Just have a 5 cent tax that increases at double the rate of inflation every year with an adjustment factor inversely proportional to the 1 year average gas price.

If gas prices are at a 1 year high, the tax would be negligible. When prices lower, the tax would be doubled.

5 cents isn't much at first, but it would rise over time to be an increasingly motivational incentive to find alternatives to foreign (and domestic) oil.


How about flipping the idea that the govt runs this?

Why doesn't Toyota or Honda start a promotion on their leases - drop the price by $x, if you will sign up for a lower mileage/year lease. Adjust the lease rebate for its rated mpg.


The idea of a tax on every gallon gasoline sounds quite efficient. Such a tax will provide people with the incentive to utlize public transportation, ride in more energy efficient cars as well avoid driving in general to reduce gas usage. This will be great for the environment and even better for the economy in order to maintain stability, since the fluctating oil prices will not drive the american people virtually insane. The only real flaw I see in this plan, is that i can predict complaints from those business who will lose profits from imposing such tax. That is to say, the gas stations and automobile industries who are not energy efficient. But we can't all win, can we?


Checking people's miles driven per year at an annual inspection decouples the disincentive(high gas price) from the moment of purchase.

Also the fee calculation would be based on the epa miles per gallon rating for the vehicle which would give people an incentive to modify their cars(if not their odometers) to drive more miles than listed on the odometer. It is really easy to put slightly larger tires on a vehicle which would travel a greater distance with each revolution but the miles recorded would be unchanged.

My guess is that most 2 car families would only opt in one of their cars. They would drive the untaxed car on long trips and on weekends which would allow them to collect the rebate without driving any less.

Where would the money come to pay people who are well below the break even point? We need to generate revenue to repair our roads. How do we do that fairly if we give those who drive heavy vehicles lots of miles a free pass?

The reasoning behind this silly proposal is that our elected representatives cannot effectively pass good public policy measures needed to create positive societal change. This is this problem. Why is it so hard for our elected representatives to make the right choice on easy policy decisions: The corrupting influence of money in politics.



Why don't you pitch it to a private chain of gas stations?


The basic idea of a gas tax, in my opinion, works really well. Where I live in GA, gas prices fell from $4+/gallon to now about $1.80/gallon. Most people around here probably wouldn't even notice the difference between an increase in the gas tax and the everyday fluctuation of gas prices. The problem comes in when you try to make it voluntary. A mandatory tax offers incentives to be more fuel efficient. A voluntary tax takes away that incentive and offers the incentive to cheat.

Matthew R.

If you have an incentive, but it takes more than one sentence to explain the incentive, the average person won't take advantage of it. It's too confusing. The wonderful part about $4 gas was that even a child could understand the disincentive to buying more, and the incentive of using less. That $4 gas did more for conservation and fuel efficiency than all the harangues from celebrities and politicians.


Rationing is the way to go. Decide how much gasoline to allow to be sold and give everyone an equal share. Set the limit based on the country not being able to afford more. (In actuality, this is true)

Those who don't use their share can sell the coupons and subsidize their other activities. Nobody can complain that gas is too expensive, they're just an unpatriotic scumbag who uses more than their share!

As the quantity allowed to be sold decreases, the price of ration coupons will increase and the virtuous will not only love you but be rewarded for their sacrifices to screw OPEC.


#22 - Chris, I hope you're right, but there are active trials of satellite tracking based 'road-pricing' taking place in the UK today... billed as a congestion buster as well as discouragement to car use, since roads can be priced differently by demand/congestion.

The UK government directed effort on reducing car use/gas use works on permanently high gas tax, with a built in escalator beyond the rate of inflation, plus annual car tax based on emissions and a required annual roadworthiness certificate (MOT) - covers corrossion and a whole bunch of mechanical stuff. I think car tax and junk cars are components of an overall car use policy...

In UK there are not really any junker cars ...

I think the low cost junker has a particular effect on US driving rates and enables many poorer people to keep driving who in other countries wouldn't be on the road. so gas price changes will have a worse effect on the poorest in the US ?



I almost decided to ridicule the idea of a voluntary tax, then I remembered lotto....


Why would the government need to "track" mileage at all? Small business owners already report mileage on their taxes to receive the vehicle deduction. I haven't heard of any pressing need to convict those who choose to commit tax evasion by inflating their mileage figures, and the IRS only confirms the mileage amounts during an audit.

Just to brag - I have a 2006 model year car purchased in late 05 and it only has 23K miles on it.


Our country's adults are so stupid and distracted that they couldn't prepare for a digital television conversion, despite years of advance warning, cheap ditigal TVs, and subsidized conversion units. What makes the authors think that these same people can understand a pre-tax refund plan or file the paperwork annually that would be needed to get the funds? The pre-tax idea -- just like "commitment contracts" -- has been devised by over-smart people for other over-smart people who have a tremendous amount of free time to indulge in tweaking their lives. Tripling the gas tax is the simple way to get the job done and send a message to all drivers.

travis ormsby

If I can sign up as many cars for the "pre-bate" as I want, doesn't that give me an incentive to buy a bunch of clunkers, sign each of them up, and them not drive any of them?

I can easily find cars that cost less than $500, and for each one I do, that's a net gain for me. Seems like this would mostly cause an increase in the cost of junker cars, hurting poor people w/o enough savings to buy a decent auto.

The pre-bate idea seems interesting, but half-baked at best at this point.

Leland Witter

I don't know why anyone peels bananas the normal way - I've been doing it monkey-style for years and it's far-and-away the better method.


Any idea, regarding monitored-mileage taxing, as involved as the ones stated above would be unworkable.

I am outraged at reports that some members in Congress would even repeat an idea as un-American and unconstitutional as a MONITORED-mileage tax.

If they want to tax mileage, then the tax should be paid at the gas pump and not via any electronic gadget placed inside my car that monitors where I go.

I am a 67 year old woman who's never had anything to hide regarding my whereabouts. But I will rally and picket to my last living day to prevent any legislator from trying to monitor my driving.

Under the Constitution, we have a right to freedom of travel. No travel is free if the government monitors it. There seems to be too many members of Congress who have no idea what the Constitution says or what it means.

While I surely would not like it, I would pay a tax on gas that would double the cost of gas, even up to an outrageous $10 per gallon (as Europeans do). But no legislator who even talks about this 1984-type monitoring idea will ever have my vote and I would join many rallies to remove any legislator from office before his/her term expires if they continued on this monitored road. Mileage monitoring is not a viable idea. Appropriate gas pricing is akin to a user tax and is the best way to affect driving behavior.

Maybe TV ought to come up with a reality show for legislators. If we don't spend the hour howling in frustration, maybe we'll at least get a few good laughs.



Call me an astronaut here....astronomers just don't seem to get this reality thing. "Dude...I had this idea to send you to Pluto...it's simple matter of math, I did the equations on a napkin."


Basing tax on car fuel consumption ratings rather actual consumption would result in the lowest per gallon taxes on people who drive aggressively (within each rating category).

By speeding on the highway and accelerating aggressively, you can essentially get the fuel economy of an Impala driving a Prius. (http://www.edmunds.com/advice/fueleconomy/articles/106842/article.html).

If we were serious about saving energy, capping horsepower would immediately result in higher fuel efficiency with no technological improvements, as well as making our roads safer.