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“Big Oil” Wants a Carbon Tax on Motor Fuels: Back to 1919?

“Key senators are weighing a request from Big Oil to levy a carbon fee on the industry rather than wrap it into a sweeping cap-and-trade system that covers most of the U.S. economy.

If accepted, the approach — supported by ConocoPhillips, BP America and Exxon Mobil Corp. — could rearrange the politics of the Senate climate debate and potentially open up votes that may not be there otherwise.”

- Darren Samuelsohn, “Senate Trio Hopes to Hit Pay Dirt with Carbon Fee on Transportation Fuels,”  Environment & Energy Daily, March 3, 2010, (subs. required)

History matters. And the record suggests that small, wedge taxes are a dangerous thing.

Consider one of the most interesting examples of political capitalism in the history of the U.S. oil and gas industry. The story concerns the first state motor fuel tax, passed in Oregon in 1919 at, you guessed it, $0.01 per gallon. (But that penny is worth about 12 pennies today!)

Was this tax the work of a far-sighted reformer? Or was it a confluence of private and public interests creating a demand for and supply of government favor?

Interestingly, “Big Oil” was behind the Oregon gas tax. The major oil companies calculated that the demand for gasoline and thus the price of gasoline would rise more from tax-financed new road construction than demand for the same would fall from the tax.

Oregon’s beginning led to road taxes in all 48 states within a decade to fund road construction.

Problem was that gas tax revenue started to be diverted to other uses to the chagrin of the oil majors, now organized as the American Petroleum Institute (API). “Phantom roads” became an issue.

Government intervention giveth and taketh away. (Could the same be predicted for the ‘starter’ carbon levy?)

Here is the story of the first motor fuel tax reproduced verbatim from Oil, Gas, and Government (Cato Institute: 1989), pp. 1375–76.

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Events in Oregon were the genesis of the motor-fuel tax revolution. The state legislature, desperate to secure new funding for public roads, proposed in 1917 to increase motor vehicle fees. The rationale was that any increase would be saved in automobile repairs once improved roads were in service. Leading the fight with the author of the plan, C. C. Chapman, was I. N. Day, a former state senator turned paving contractor. After a long fight, the legislature approved the tax bill thanks to Chapman’s oft-revised roadmap. As he explained:

The political problem involved was chiefly that of map making…. I was asked to draw a state highway map that would win the votes of a majority of the members by placing roads [so] they could take them home with them as pork wrested from Portland…. This map ran in front of the farm homes of enough legislators that . . . 37 representatives joined in introduction of the bill…. It took all day . . . to get the map changed so a majority of the Senate would vote for the bill…. My poor map was almost unrecognizable, but it served its purpose.

With the motor-vehicle tax, the motor-fuel levy was only a step away. Earlier, a gas tax had been proposed in conjunction with the state gasoline inspection law, and with more revenue needed, Chapman, now editor of a leading newspaper, editorialized for a gas tax, which was seized upon by road interests and legislators. A bill was drafted by the highway committee, and a 1 cent per gallon levy became law on February 25, 1919, with the help of regular editorials by Chapman. Years later, Chapman expressed his thanks before the American Petroleum Institute (API):

In passing, may I pay a deserved tribute of credit to the big oil companies. They cooperated with us every session in the application of the gasoline tax idea. We had reports that they were opposing it in some other states, but in Oregon at no time did they attempt to obstruct it. Their counsel aided in perfecting details of the legislation.

9 comments

1 Charles Barton { 03.03.10 at 9:02 am }

Indirectly, paying taxes on oil products for road construction makes economic sense for oil companies. Better roads, mean lower driving costs for motorists, hence as the cost of driving falls, Jevons’ paradox comes into play and oil consumption rises.

Diversion of gasoline tax money should not be considered a major issue. The roads have been built, and still are being built.

2 J Mayeau { 03.03.10 at 10:18 am }

Well actually no. Roads are not still being built. Pot holes are being filled, lanes are being resurfaced, but freeway centerline mileage has only increased by 64 miles since 1974.

3 TJ { 03.03.10 at 10:27 am }

This sounds like the same snake oil scam that gave us the income tax. The tax was supposed to be a small tax on only a few people…in 1916!
Did anyone at Big Oil think about how high you have to raise the tax on EVERY fuel to cap emissions at Obama’s 80% target?

4 Jean Demesure { 03.03.10 at 11:05 am }

Just nitpicking but I presume by “$0.01 cents”, you meant $0.01 (1 cent) ?

[RLB: Thank you Jean. The error is corrected. I also added the inflation adjustment that is quite striking.]

5 Andrew { 03.03.10 at 5:58 pm }

TJ { 03.03.10 at 10:27 am } You may have noticed the similarity of the dates! That was the “progressive era” and as we know the modern left is proudly calling itself progressive these days.

6 Damned Skeptic { 03.04.10 at 2:02 pm }

Your post reminded me of why Interstate 5 here in California goes through Yreka. It’s because State Sen. Collier had enough influence to get it diverted there.

7 Roxanne Bland { 09.05.10 at 12:55 pm }

I’m writing a brief that concerns motor fuel taxes. Is the source for your statement that OR’s 1919 tax led to “road taxes in all 48 states within a decade to fund road construction” contained in your book?

8 rbradley { 09.05.10 at 8:57 pm }

Yes–just as indicated in the post.

Oil, Gas, and Government : The U.S. Experience(Cato Institute: 1989), pp. 1375–76.

9 Roxanne Bland { 09.07.10 at 10:54 am }

Do you have the statutory citations in your book? Sorry, I neglected to ask in my earlier question. Thanks for your time.

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