In current negotiations over raising the federal debt ceiling, President Obama and his allies seem focused like a laser beam on including tax increases in any deal. Since the current economic and political environment is not friendly to such policies, they know they must take maximum advantage of so-called “must-pass” legislation like a debt-limit extension to ram through their agenda. Meanwhile, however, there are subtler moves afoot to heap similar burdens on the American people through regulatory acts. A push to have the Environmental Protection Agency and Department of Transportation institute potentially harsh new fuel economy standards is one example.
Reports earlier this year indicated that the Obama administration is considering a new fleet-wide fuel economy mandate in the range of 47 miles per gallon to 62 miles per gallon by 2025. Not surprisingly, environmental groups like the National Resources Defense Council have argued for the high-end 62 mpg standard, while the White House has floated a 56 mpg figure to members of the Michigan congressional delegation.
To put both of these targets in perspective, the 2011 Toyota Prius, a hybrid car, gets 50 mpg combined city and highway, and the Chevrolet Cruze, the car with the best fuel efficiency among gas-powered vehicles, gets 42 mpg on the highway. With the 62 mpg CAFE mandate, the overall fuel economy of the entire fleet from each car manufacturer will have to average one-third better than the most efficient models now on the road.
Meeting this number — or the White House’s suggested 56 mpg benchmark — over the next 14 years might not be impossible, but the stumbling blocks are bigger than many might believe. The Center for Automotive Research (CAR) authored a study concluding that a 62-mpg mandate could eventually cost consumers over $9,000 for each new vehicle. This would be the equivalent of a new tax on cars, but unlike an actual tax, it wouldn’t need congressional approval.
The only thing worse than paying more each time you fill up the tank is being forced, through a hidden “car tax” imposed by bureaucrats, to shell out for smaller, less capable, less comfortable and possibly less safe vehicles.
Still, some say these drawbacks are worth it in order to reduce our dependence on price-sensitive oil. Yet, the U.S. has other options to increase available supplies and stabilize those prices, such as easing restrictions on domestic oil development and facilitating more purchases from friendly trading partners like Canada. Others claim that CAR’s conclusions are overblown, pointing to estimates that peg the extra per-vehicle average cost of the mandate at a little over $3,000. Those figures — published, of course, by the regulators themselves — seem a small comfort to those who would still have to find the money or go deeper into debt to meet the higher up-front price.
The scenario could be even worse for small business owners, farmers and contractors, since the regulatory price hike for the trucks they all rely on could well exceed the averages.
This “hidden tax” would not just squeeze the amount of disposable income available to these hard-working Americans and their families; it could have an adverse impact on the labor market. The CAR study predicts the move to 62 mpg could eventually cost over 250,000 American jobs.
Instead of assuming customers are not sophisticated enough to consider fuel economy when making decisions about what car to buy, artificially raising the price of cars and trucks and putting jobs at risk, the administration should allow our free-enterprise system to build upon the progress already made toward developing and delivering energy-efficient cars people want, at a price they can afford.
Whether they’re hit with new taxes to fuel government spending or more regulations to fuel government control of the economy, consumers are the ones left with lighter wallets.
Pete Sepp is Executive Vice President for the 362,000-member National Taxpayers Union (ntu.org), a nonprofit citizen group founded in 1969.