A Tax Revolt Hits the Road in Europe

The rise in the price of oil to the $36/barrel range has led to a series of impromptu demonstrations that are sending a message to West European governments: cut taxes. These demonstrations are taking place right where they belong: on government-owned highways.

Europeans are manning the barricades once again. They are using trucks and cars as rolling barricades – very slowly rolling – to jam the highways and slow down traffic. They are providing a practical lesson in Ben Franklin’s famous dictum, "time is money."

These are highly cost-effective protests. First, they are as close to spontaneous as large-scale protests ever get. Governments cannot prove a conspiracy, so there is less risk to protesters. Second, a highway slowdown closely matches the resources of smaller, less organized, less wealthy, and less controllable groups. The rule is:

"One truck jams one lane; three trucks, and there is no escape." Third, highway slowdowns are also media-irresistible. The TV crews have all the visuals they need: no talking heads to bore viewers. Fourth, these protests are self-recruiting. "Hey, I own a car. I can jam the system, too. I’ve always wanted to do that!" Finally, the police can’t arrest everyone. They can barely arrest anyone. Once those three trucks up front slow traffic to a crawl, it stays slowed for hours.

Then three more show up to replace the original three.

If the national governments of Europe taxed gasoline as little as Federal and state governments tax gasoline in the United States, Europeans would today be paying about one half to one third of what they were paying before the oil price hikes began. What Europe is suffering is a tax crisis, not an oil crisis. A Reuters story on September 15 got it right.

The Italian government, long ridiculed as unstable and ineffective – my favorite kind – has more sense on this issue than all of the others. Italian politicians see that it is more important for the trucks to roll than for a few marginal bureaucratic heads not to roll. They get the message.

Why a fuel tax crisis? Why now? Leisure. The recent economic recovery in Europe has increased demand for leisure time, which is that rarest of consumer goods, an untaxed commodity. (If you want to know why Europeans demand six-week paid holidays, and Americans do not, consider the differences in marginal tax rates: the Europeans are getting paid in free time, meaning tax-free time.) One result has been an increase in travel, and this has led to Europe’s fuel tax crisis.

All taxes transfer resources from the private sector to the public sector. Each form of tax has a different market-distorting effect. The least distorting tax is a bridge tax or tollway tax: only users pay. But these are local taxes. A fuel tax that generates revenues that are used exclusively to fund roads is the least distorting of all the state and nationally imposed taxes, since the primary users of the government-supplied roads are the ones who pay the tax. Roads at least have the advantage of being more useful to more voters than most other government-subsidized projects. There is less wealth-redistribution with a gasoline tax.

Governments could tax tires, too, but that would lead to poorer consumers’ deciding to drive on worn-out tires, which would increase the number of accidents, especially of poor people. That would enable libertarians to identify the government as "Firestone with guns." I don’t expect to see a tire tax anytime soon.

(Side note: gasoline rationing in the United States during World War II was not imposed primarily to save on gasoline. It was imposed to reduce driving, which reduced the consumption of rubber, which was in very tight supply because of Japanese victories in Southeast Asia.)

When governments raid the fuel tax fund to finance road-unrelated projects, market distortions accelerate. Europe’s governments do this with a vengeance. They use money paid by mostly middle-class car owners and trucking firms to fund other pet projects, number-one of which is to pay salaries to bureaucrats.

As a sales tax, the gasoline tax is not graduated. You pay by the quantity of gasoline your vehicle consumes, not the quantity of income you receive. Socialists and their soft-core liberal cohorts dislike the principle of a flat tax on consumption precisely because it does not discriminate against higher income taxpayers, but sales taxes collect so much revenue so cheaply that Leftists cannot resist the gasoline tax, any more than they can resist the tobacco tax, which taxes the lower classes most of all. Ideology is one thing, but funding bureaucrats’ salaries and also increasing their power are something else again.

The middle class also favors graduated taxation. Voters search for that holiest of political grails, the tax paid by the fellow over behind the tree. But, when it comes to government largesse, there is always more demand than supply at subsidized prices. There is just never enough revenue to fund all those projects (minus 50% for handling) demanded by all those voting blocs. Voters consent to sales taxes which they wind up paying. Then they try to recoup their tax losses by getting additional subsidies for their favored projects. And the beat goes on.

From a politician’s perspective, a gasoline pump is a two-way pump: gasoline is pumped out, and revenues are pumped in. But this time, oil exporters and oil-shipping companies are in a position to reap oligopolistic returns. They have responded to high consumer demand and restricted delivery systems to raise gasoline prices marginally – in the United States, by about 30 to 40 cents a gallon since fall, 1999. This marginal increase, when augmented by high European fuel taxes, has pushed gasoline and highway-use diesel prices over the tolerance point.

It is a shame that no one has been able to find a way to persuade millions of voters that OPEC is behind the income tax, too.