I'll leave the issue of the EITC (Earned Income Tax Credit) aside for someone who is more well-versed with American tax policy. Rather I will answer the general question of "How can we be sure that governments will offset a rise in gas taxes rather than just spending the money?"
The answer: We can't be sure. Despite what the FairTax people might tell you, we can never be sure that the government will use a rise in one tax to lower another. If you're looking for certainty, public policy is probably the last field you should think about entering.
But what I can describe is why a partial- or full-offset of a rise in the gas tax is likely.
Again, I cannot speak for the American experience, but in Canada, tax-offsets are very common. As we saw in The Gas Tax - Answering NoPigou's Questions, tax-offsets are very common in Canadian taxation policy: such as the off-sets in the recent "Income Trust" tax, the increase in income taxes to pay for the GST tax cut, and Mulroney's replacing of the MST with the GST. In Canada we've had two major tax-offsets in the space of a few months. In the Canadian context, we have evidence supporting the governments are fully capable of implementing tax off-sets?
But in this case, will they? I suspect so. Consider our example of the 9 cent a litre tax hike in How would a gas tax reduce consumption by enough to make it worthwhile? Would Canadians be willing to absorb a 3 billion dollar rise in taxes when the government is in surplus? I suspect not ; I cannot see the tax increase being politically feasible without at least an equal (if not greater) tax cut somewhere else. That is just my opinion, though.
The U.S. presents a different story. With the U.S. government producing massive deficits, a tax hike looks to be almost certain in America. A rise in the gas tax may be an attractive option politically, compared to a rise in an income tax hike. Plus the government is going to eventually have to pay for the Bush adminstration's profligate spending eventually.
In the next section, we will investigate the idea that the government will automatically spend the entire amount of any tax increase.
Next: How do we know that governments will not just spend the additional revenue from a gas tax?
Previous: How would a gas tax reduce consumption by enough to make it worthwhile?
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