This oil man favors a gas-tax hike

Paul Foster, chairman and CEO of Western Refining.

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NEW YORK (Fortune) -- It's not often you hear a corporate executive advocate a tax on the product he sells, particularly not in the oil business, where opposition to gasoline taxes is fervent. But Paul Foster, the chairman and CEO of El Paso-based Western Refining, is (dare we use the word after the presidential campaign?) a maverick.

Foster, 51, is a conservative Republican who has spent his entire career in the energy industry. He founded Western Refining (WNR, Fortune 500) in 1997 and in a decade built it into a $7.3 billion giant (No. 342 on the Fortune 500) that refines various fuels and also sells gasoline to consumers, mostly in the Southwest under the Giant and Mustang brand names.

Foster contends that the country needs to raise the federal gas tax significantly. He points out that, in real terms, we're paying less than we did decades ago. (At 18.4 cents per gallon, the federal tax is currently 16% lower, adjusted for inflation, than it was in 1970.)

Foster argues that the levy should be increased, in steps, to $2 per gallon or more. He's even willing to credit the Europeans with a good idea or two on this score, as he explains in an interview with Fortune.

Q: What's your argument in favor of a higher federal gasoline tax?

A: Well, first of all, I believe that the best remedy for high gasoline prices is high gasoline prices. That's kind of a play on words, but the fact is there's a reason that everybody in Europe drives roller skates and here we drive SUVs. It's because Europe has a huge tax on gasoline. As a result, gasoline at the pump is expensive and people go out of their way to consume less fuel.

If we had started back in the 1970s, increasing the tax periodically or annually, I believe that we would be consuming far less gasoline than we do today.

And I think we have our head buried in the sand if we think that keeping our gasoline tax at the same [real level] as in the 1970s is somehow the right energy policy. It's just not.

The other thing is that all that extra money that we're spending, since we import 65% of our crude oil, goes to foreign nations. Whereas, if it was in the form of a tax at home, a lot of additional money we spend would be used for our own [benefit] - whether it's highway infrastructure, or whatever the use of the funds would be.

I'm in the refinery business. What I'm suggesting is not necessarily good for our business long term. But it's good for the nation and it's good for the economy and it's what I believe.

Q: How much should the tax be?

A: I think that the tax on gasoline needs to be at least $2 a gallon. But I don't think you can go there all at once.

I think you have to do it gradually. If you add a nickel a gallon now, I honestly don't think anybody feels that. And if you add a nickel a gallon every year, then 30 years from now - I know that's a long time - eventually you get to a point where it starts to make a difference.

Q: It seems like many thoughtful people - certainly many economists - favor a gasoline tax. And yet, at the same time, they acknowledge that it can never happen politically. President-elect Obama has said he opposes the idea, though his choice for Energy secretary, Steven Chu, has been quoted saying he favors something along the lines of what you describe. How likely is this to happen, even if it's a great idea?

A: I think it's very likely but I think it's going to be small pieces at a time. I don't think you can come in and slap on a $2 tax on gasoline, especially in this economy. As a politician, you would get shot, or at the very least, not elected, if you proposed something like that.

But it's not just because it would be politically unpopular - it wouldn't be the right thing to do. This would be the worst time.

I think it's unfortunate that we haven't had legislators with the fortitude to put it out there over all these years. I mean, we haven't [adjusted the tax to keep pace with] inflation. And I know that every president and every legislator is concerned about the consumer and making sure that people can afford whatever it is they need to afford. But the fact is we consume way too much fuel and there's got to be an incentive not to do it.

Frankly, I'm a very conservative Republican. I'm not in favor of hardly any taxes. But this is one that has actually been reduced, on an inflation-adjusted basis, over many years. And to me that doesn't make any sense.

Q: Is this a view you've held for a long time or something you've come to in recent years?

A: It's a view that I've held for a long, long time. I haven't talked openly about it much because, like I said, it isn't necessarily good for my business. I'm not going to do a Boone Pickens here, either, and go on the road and try to sell it.

But I think most people probably agree with what I'm saying. You don't have to support something to agree with it.

Q: Is this the first time you're going to be publicly identified with supporting higher gas taxes?

A: Yeah, I think so.

Q: One of the common criticisms is that the gasoline tax is regressive, that people with less money will bear a bigger share of the burden in relative terms.

A: Well, you can certainly reach that conclusion. But it's also a user tax. It's a tax you have a choice about - just like buying the gasoline to start with. And I think, honestly, the people who are going to use less gasoline are people who are on tighter budgets.

That doesn't mean that you're targeting them. But the fact is, any time you talk about trying to find a way to curb consumption of something, I don't know any other way to do it other than price.

Q: What about Americans' deep emotional attachments to their cars? Will people really change their buying patterns in terms of cars and efficiency, or is that something that will come and go with the price?

A: I think they'll absolutely change, but I think it'll be over a period of time. And again, you just have to look at Europe. A lot of people won't change. Our roads and parking lots and everything else are built to accommodate the bigger vehicles.

And I think a lot of people will continue to drive those - myself included. But I also think that at some point we have to do something, and I think it's a way to start.