The Political Economy of Gasoline Taxes: Lessons from the Oil Embargo

Abstract

From 1864 to 1972, the real price of oil fell by, on average, over 1% per year. This trend dramatically broke when prices for crude increased by over 650% from 1972 to 1980. Policymakers adopted several policies designed to keep oil prices in check and reduce consumption. Missing from these policies were taxes on either oil or gasoline, prompting a long economics literature documenting the inefficiencies of these alternative policies. In this chapter, I review the policy discussion related to the transportation sector that occurred during the time through the lens of the printed press. In doing so, I pay particular attention to whether gasoline taxes were “on the table,” as well as how consumers viewed the inefficient set of policies that were ultimately adopted. The discussions at the time suggest that meaningful changes in gasoline taxes were on the table; the public discussion seemed to be much greater than it is today. Some in Congress and many presidential advisors in the Nixon, Ford, and Carter administrations supported and proposed gasoline taxes. The main roadblocks for taxes were Congress and the American people. Polling evidence at the time suggests that consumers preferred price controls and rationing and vehicle taxes over higher gasoline taxes or letting gasoline prices clear the market. Given the saliency of rationing and vehicle taxes, it seems difficult to argue that these alternative policies were adopted because they hide their true costs.