Lieberman and Kerry have proposed an additional 15 cent per gallon federal gas tax. Currently, the federal gas tax is 18 cents and states, on average, add another 27 cents, for a total of about 40 to 50 cents per gallon.
By comparison, Europe’s gas tax averages more than $5 per gallon, and today they drive smaller, more efficient cars. The idea of such a large gas tax in the US is politically more difficult, but there is a win-win approach if it can be done.
Taxation is a means for government to raise revenue and to discourage certain behavior. With this in mind, it is unfortunate that we tax income as this, to some degree, discourages labor.
If the government were to put a $1/gallon tax on gas and reduce the payroll tax appropriately, it could be a revenue neutral move that creates 2 useful incentives, that is, to encourage earnings and to discourage imported oil and CO2 production.