 Welcome back to ThinkTech. Here we are on Energy in America, and we are joined by Skype with Jeff Kissell of the Washington, D.C. based Energy Policy Research Foundation, and that's EPRNC. We're going to discuss today gasoline taxes as a way to enable properly and properly reform the U.S. tax system. Our gasoline taxes, the way to save tax reform. This is a very current question. Most of the revenue initiatives to save tax reform are not making it and Congress may not be able to do it, such as the border adjustment tax, the carbon tax, the $8 billion we've heard about to enable the new version of what we want to call it Trump health care. We have a reduction in the individual income tax, a reduction coming in the corporate income tax, not saying whether that's fair or not. We have the elimination of the estate tax. We have $54 billion that Trump has suggested he wants to go to the military, and we have, I think, 10 or more for the wall he wants to build on Mexico. We have an existing $20 trillion deficit, and in order to enable tax reform on top of all these spending programs, my goodness, how are we going to do it? And Jeff Kissel is here with us to discuss one possible answer. Hi, Jeff. Welcome back to the show. Thanks, Jay. It's a great privilege and an honor to be here, even though I'm wearing a necktie today because I'm in New York. Aloha. Aloha. So what do you think? I mean, how serious is this, these various vectors on tax reform? How serious is tax reform? Where does it stand now? And what do you think about the possibility of using gas tax, gasoline taxes, to make it more possible? Well, at the Energy Policy Research Foundation, we are always looking objectively at the most logical outcome in assessing the costs. And unfortunately, it's as serious as a heart attack, as they once said. The issue is, where can you get consensus in order to raise some money to offset the cost of the various programs that the administration wants to put forward? So it's not just tax reduction, it's spending increases. And the federal gasoline tax has not been raised since 1993. Now, state and municipalities have raised gasoline taxes all over the country. And I have some slides that show you just exactly where they are. And of course, if you look at the slides, on slide one, we've got a little map of the country. And it shows the average price of gasoline. And then it looks, it's color coded, not red and blue for Republican and Democrat, but red for high gasoline taxes and so on down the line. And of course, the democratically leaning states have got high gasoline taxes now. And I don't think that the administration sees any risk in asking that those taxes go higher. Wow. So on the other side, on the side of how this affects the way the country works, granted that there's been no increase since 1993. But you know, it's a world that's different since 1993. How is this going to affect the way transportation works? How is it going to affect, if it happens, of course, how is it going to affect the way energy works? Well, unfortunately, in the short term, and if you look at, if you look at my second slide, you'll see the national average. We don't have them available right now, since per gallon state as well as other excise taxes and then federal taxes. You will realize that the states that consume the most gasoline, of course, are not only paying the highest tax in absolute sense now, but they're going to pay the highest gross dollars because they drive the most. Now, Hawaii is fortunate because we don't drive that far, but our cost of fuel is among the highest in the country. And Hawaii's very enlightened government, in my opinion, is doing the right thing to move us away from traditional fuels for our transportation sector into renewable fuels, which are looking more and more attractive, the more expensive these taxes and other costs get. Well, I get three things out of that. Number one is we will be affected if there is an increase in the gas tax and federal gas tax in order to alleviate these other problems and allow for some kind of tax reform as he wants. But the second thing is we will not be paying as much as other states because we don't drive as much as other states. But the third thing is, gee whiz, this suggests that the best approach is to accelerate the idea of having renewable energy in our transportation here in Hawaii. And that's been a subject of discussion here on ThinkTech for some time. It's been a subject of discussion with the Hawaii Energy Policy Forum for four or five years at least. And I would have to say that there hasn't been much movement on that. We have a lot of discussions, but we haven't really gotten to the point where we can say that people are on a track to get off gas cars, gasoline cars, fossil fuel cars, and into electric cars or some other approach. I don't think rail necessarily makes a big dent in it. I don't think bicycles make a big dent in it, although that's nice to have on other levels. We need to go electric cars. Do you agree? And what is your suggestion in any event for Hawaii to move to renewables in transportation? Well, speaking of tracks, we did bring up rail, and we did bring up dense. So, you know, that makes the reaction about what to do about automobiles. We've gotten about as much efficiency out of the conventional single or dual passenger transportation vehicle as we are going to get, unfortunately. And it doesn't really matter very much whether that is a Honda Civic or a Chevy Volt. Each one of those, if you do the right math, uses about the same amount of carbon producing resources to move its passengers around. What we've got to do is look at ways to get people to either share vehicles or, in other cases, get into buses and work closer to their places of living and schooling and shopping. And if you look at that carefully, you start to think about the real alternatives. It is clear that we are on a path to driverless vehicles. Driverless vehicles can offer a huge improvement in vehicle efficiency because in the first instance, you can put more people in them because you can program them to pick up people and deposit people more efficiently. And in the second instance, they actually can work on more renewable resources than conventional gasoline and conventional electric cars. They work best with electric, don't they? I'm trying to envision a fossil fuel car as an autonomous vehicle. It's hard to do that because the systems are so different. Isn't it clear that, as a matter of fact, you're not going to have automated cars without having electric cars? The two go hand in glove, yeah. Well, that's one of the best matches, but you can certainly have an internal combustion engine in a driverless vehicle, even if the engine just runs an electric generator. 90 percent of the ships hauling freight all over the world today are electric. The diesel engines run generators. So the mode of propulsion is not the critical item. It's the technology for the, and the algorithm, sorry, that people use to determine where to pick up and deposit the passengers. The elevators are a great example of that today. If you go into some of the office buildings in downtown Honolulu, you no longer have elevator buttons inside the cabs. You announce where you want to go when you enter the lobby by entering your floor on a control panel, and that computer inside the elevator decides what floor is going to get the most traffic, and it organizes the elevator to be at that floor when the traffic comes, and it's predictive. Driverless vehicles can do exactly the same thing. It's just a question of technology and data collection. Yeah, it's exciting to think that we're on the cusp of that and there are so many people working on it. Every time you pick up a newspaper, you hear about some other large national or multinational company initiating an effort to do research on driverless cars. But let me go to the point of the fuel for a moment. Do you feel that we can enter into renewable cars in accordance with the Hawaii target date now? I don't know if that bill passed, but there was a bill that was in the legislature until a couple of weeks ago it looked like it was going to pass to require or at least an aspirational goal of 100% renewables in transportation the same year as the electrical generation renewables target 2045. So assuming it passed for a moment, I don't know if it did, but assuming it passed, how are we going to reach that? Renewables seem to be the way. And the question I put to you, Jeff, is in a state where everybody loves fossil fuel cars and there hasn't been any significant movement to electric cars, and I think 5,000 in the state, and that's really not a drop in the bucket. How are we going to get there? Well, the aspirational goals are important because unless you have a goal out there, you don't really know how to make progress. You can't measure your progress. So whether it's 2045 or some other year is much less important than having a goal. And I admire and commend the leadership for wanting a goal. The second issue is how to get there. Well, it is illegal in this country, as far as I know, to employ undocumented aliens. Yet we employ many, many millions of them. It's illegal to cheat on your income tax. Yet other than you and I, I know that there are other people who cheat on their income tax. You're not going to get full compliance. What you want to do is incent compliance. And states like OIA are taking a leadership position in providing incentives for compliance. California has got a great incentive for compliance. If you want to get in the car pool lane, you either get more than one person in your car, or you get a zero-emission vehicle with the traffic jams that go on for 30, 40, and 50 miles in the state of California, that's a great incentive. And they've got a lot of compliance. Yeah. That's how you change human conduct. Change human conduct by having a... And if you look at my third slide, you see the relationship of gasoline prices in California to the real world. I couldn't find a Hawaii graph on short notice, but Hawaii is slightly higher than the California line in this instance. So the higher those prices go, the more incentive there is for people to do other things than sit alone in their car in traffic. Mm-hmm. Chef, we'll take a short break, if you don't mind. That's Jeff Kissel of E-prink. We're talking about gasoline taxes as a way to save tax reform that's pending in Congress right now. We'll take a short break. We'll be right back and we'll continue the discussion as it affects Hawaii. You're watching ThinkTech on ThinkTechHawaii.com, which broadcasts five live talk shows from noon to 5 p.m. every weekday, and then streams our earlier shows all night long. Great content for Hawaii from ThinkTech. Hawaii is my mainland every Friday at 3 p.m. on ThinkTechHawaii. We talk about things of interest to those of us who live here, and my past blogs can be found at kawaiilukas.com. Okay, we're back. We're live with Jeff Kissel of E-prink, which is headquartered in Washington, D.C., but he joins us by Skype from New York. I think he stayed up late. It must be 9.15 over there. Thank you for staying up late, Jeff. Well, fortunately, the hockey playoffs are not on tonight, so I've got a pass to talk to you. Priorities. Priorities. So we're talking about ways to save tax reform, to have tax reform. Of course, it strikes a lot of people. This is just exactly the wrong time to have tax reform because President Trump, he wants to spend money on a bunch of other things, and so it's hard to see this as a balance, as a net balance. Rather, it looks like we're going to go into the hole, and we're going to wind up spending a lot more than we're making, and that sounds more like a democratic process than a Republican one, but hey, we'll see what happens. And your suggestion is that gasoline taxes could be a way to create or at least help a balance that would enable tax reform in Congress right now. Do you think that gasoline taxes would be substantial enough? I mean, how much tax, what rate of tax would we have to charge? What things would we have to do to raise enough money to make a significant impact on the federal budget, which is huge, and the budget deficit is likewise huge. Isn't gasoline taxes in the larger sense a drop in the bucket? Well, you make a good point, Che, but at least if they can drive consensus on raising the gasoline tax, which is likely, then they can say with a straight face, at least from a fraction of a second, that they have made an effort to pay for the cost of the health care reform that they intend to introduce and the tax reform that they intend to introduce. Now, I personally don't think that this is very useful, and the statistics don't bear them out because the statistics tell us that the higher you raise the price of a commodity, the less people use it. And I don't think they can shut off the law of supply and demand. They may be able to stretch it for a while. Yeah. So, you know, but what you said, and I find this interesting, you said that they could reach consensus on this, and that's an interesting phenomenon, and it suggests that while the public, you know, may be excited about existing conditions under the health care, the second iteration of the health care bill, the Trump health care bear, they get excited about that. They would not get excited about a dramatic increase in gasoline tax. Why is that? I mean, do people not care? Well, you know, in the United States, the haves and the have-nots are suffering a great divide. And you could impose a gasoline tax, which affects the working poor more than it affects the middle class and upper middle class and super-rich. And the working poor are unlikely to retaliate, whereas the more affluent have got access to lobbyists who are going to do everything they can to make sure that that corporate tax rate comes down and the individual rate comes down and the estate tax goes away. So it's a question of who's got the most muscle to do what can be done, not what should be done. Yeah. But, you know, it reminds me of some of the senators who had visits from their constituents. I'm thinking of one fellow in Arkansas, I think it was, where a relatively young fellow and he was supporting the Trump health care reform or health care bill, I shouldn't necessarily say reform. And his constituents came and stood at his door for days and hours. They made a racket outside the federal building where his office was. They didn't leave him alone for a minute. And when they finally got him into a meeting, they were very angry. And that was because of the health care issue. And I suggest that the existing conditions provision in the health care bill now contemplated that is a hot-button issue. And that affects the poor people more than the rich ones, more than the middle class, for that matter. Don't you think, well, we've already established that an increase in gas taxes will affect the poor people more than the middle class or the rich people because they can't afford it. It's a regressive tax. A gas tax is a regressive tax. Why are people not concerned in the same way? Do they not realize that the gas tax will hurt them? They're just not aware of the impact it has on their lives and their driving habits. I think that the gas tax increase is a more moderate shock to the system than a health care increase. So if a person today on the Affordable Care Act is paying $400 or $500 a month, and that were to jump to $1,500 a month, as it likely will if they repeal the act, that's a huge shock to the system. They can't afford it. But if they're paying $100 a week for gasoline now, and they're going to have to pay $120 a week in the near term if they raise the gas tax by, let's just say, $0.50 a gallon, then what's going to happen really is the working poor are going to find themselves with less money for education, for the necessities of life, but not so much less that it will cause them to take time off from their precious hours of work or give up that second job to march on their Congress representatives. This reminds me of the political process in Hawaii that led recently. You must have followed it through this tax on hotels at 12.5% increase in hotel tax. I don't know if that's law yet, but that was pretty surprising and shocking that in order to cover what rail or whatever else they needed the money for, they were going to tax the tourists 12.5%. And it seemed to be a decision in a vacuum because tourism is our primary product that served the engine of our economy. And I don't know if people in the legislature were thinking of what happens to tourism when you add 12.5%. It could be that that has a negative effect. But I guess the thought just as you point out in the case of the gas tax is that it's not a hot button issue, at least not for the local people, they don't pay it. And it may not be a hot button issue with the tourists because they don't realize it. So I guess when you do tax reform along these lines, you're primarily interested in how the constituent group, whatever it is, is going to react to it rather than the ripple effect on the economy. Is that good logic? Is that good government? Well, it may be consensus politics. It certainly is not thoughtful. And taking more money out of the tourist economy is putting Hawaii on a more precarious edge than it already is, because it is dependent upon a single industry. And when this economy falters, that industry falters, and we all know that, and it takes jobs out of the economy, it takes a very long time, as we all know, to recover from whether it's an economic shock or a physical shock. Yeah, we've seen that. So one thing I wanted to post to you was the notion of increasing the gas taxes on a federal level, if over the next few years, and maybe in the next administration, we find that renewables increase, then whatever rate of gas tax is established in order to enable the tax, the current tax reform bill, is likely to be flattered down because there's less gas being used on the highways. So how would you account for that? If we need the money in order to enable the tax reform, will we have the money going forward, assuming that somewhere along the line here we start using renewables seriously on America's highways? The higher you raise the price of gasoline, the less gasoline is going to be consumed. So when the administration talked about a death spiral for Obamacare, it really was kind of duplistic in what it was saying, because raising the gas gas tax puts energy consumption and accordingly highway revenue into its own death spiral. Yeah, right, one works on the other. And so it's again, it's a matter of being thoughtful, and a matter of seeing into the future and trying to figure out the relationships. And this is especially so when you're talking about tax reform, against spending against maintaining a budget. But one thing that occurs to me, though, if we're going to improve our roads and highways to the point where we can use autonomous vehicles, automated transportation, we're going to have to spend more on that infrastructure, not less. Well, and who knows, you know, what what the future will bring. But one thing seems clear is that every time you look, the federal government is undertaking more expense and more complexity, more people, more technology, more infrastructure, as you mentioned. And so we're always going to be looking that people are always going to be expecting the government to do more and spend more. And it's very hard to balance the budget that way. That's why we're $20 trillion in the hole. But let me offer another thought, though, Jeff. You know, we should be looking for various ways to soften this kind of negative tax reform where we're cutting taxes and increasing spending. Whoa. But one one thing that does pop into my mind from this discussion, and especially something that you guys deal with all the time, is the notion of a carbon tax. And I mean, it hasn't gotten that far. But arguably, if it were enacted, there would be some money coming out of that. And it would be an incentive for renewables on a national basis. I know that's not likely in the Trump administration, but let's put that aside for a minute and just talk about it theoretically. If we had a carbon tax, would that help in balancing the budget? Would it help in achieving tax reform? We already do have a carbon tax. The excise taxes on transportation fuels amount to about $50 a ton of carbon that is in those fuels and discharged into the environment. So it's not implementing one. It's whether or not we're going to raise it. Yes. But what about expanded? Are there other areas? I mean, outside of transportation, for example, where a carbon tax could be implemented in industry and who knows, in electrical generation, in, you know, other places and situations where we use carbon where we don't have to use carbon where we could use more efficient. Hawaii has had a carbon tax for many years. It's called the barrel tax. Yes, indeed. And they've raised it. They've raised it as well. And I haven't done the numbers on the cost per ton of carbon, but it is very substantial. It's certainly more than the $50 a ton that we're paying in our transportation fuels. So if you were to add that to the $50, which it is, your Hawaii is probably paying well over $100 a ton in carbon tax. And you know, as we have seen, it doesn't necessarily act as the incentive we had hoped it would. It's so interesting. Also, on the other side of it, it doesn't necessarily stick, because the legislature has raided the, you know, the proceeds of the of the of the barrel tax for every year that the barrel tax has existed. So that's an, you know, it was a great idea, but an imperfect implementation. Well, let me leave you with a minute, Jeff, to address President Trump on this issue. What would you advise him in the circumstances of this potential tax reform he is seeking? Don't reform, Mr. President. The tax system right now is cumbersome. It's unfair. It's difficult. But the reforms that are being undertaken are going to cause a significant widening of the gap between rich and poor, not because of the tax rates on the rich and the tax rates on the poor, but because they are going to widen the deficit. And unless you're going to reduce spending, you cannot afford to reduce taxes. Yes, sir. It's all about maintaining, you know, balance and it's all also about avoiding a disparity between income groups. Well, thank you so much, Jeff Kissel. Jeff Kissel of Eprink joins us to discuss a tax policy in the U.S., and the question today has been, are gasoline taxes the way to save tax reform pending now in Congress? Thank you so much, Jeff. I hope we can talk again soon. It's a pleasure, Jay. Aloha.