(FORTUNE Magazine) – "Let us rid ourselves of the fiction that low oil prices are somehow good for the United States," argued Dick Cheney in 1986. At the time Cheney was advocating a tax on oil imports as a way to protect domestic producers. The protection part was a stupid idea, but Cheney was right that cheap oil has unpleasant side effects. It makes us dependent on too many dictators, contributes to smog, and retards our progress toward a different kind of energy future. And no, we cannot produce our way out of our unfortunate dependence: The U.S. has less than 5% of the world's known reserves; two-thirds are in the Mideast.

But doesn't cheap oil help the economy? Up to a point. The more money people spend at the gas pump, the less they spend on better things, like housing, pensions, or ball games. The International Energy Agency estimates that a $10 rise in the price of a barrel of oil lowers GDP in the U.S. by 0.3%.

And yet, look around. With the price of a barrel hovering at $40, the U.S. economy is purring along at 4% growth--about the same as in 1999, when oil cost half as much. This robust performance proves that the American way of life does not go to hell when gas costs more than bottled water. That fact presents a useful opportunity for the federal government to do something smart: Raise the gas tax.

A gas tax may be politically suicidal, but it isn't madness. Bush's economic advisor, N. Gregory Mankiw, made the case for a gas tax in these pages in 1999. The New York Times recently reported that the heads of Ford and GM would prefer higher gas taxes to more fuel-economy regulation. John Felmy, chief economist of the American Petroleum Institute, is skeptical but less than horrified. The "devil would be in the details," Felmy notes, but he agrees that "taxes, from an economic perspective, are the preferred way to change behavior."

The most obvious behavior change caused by a gas tax would be a renewed commitment to efficiency. There's no surer way of getting better cars and trucks on the road faster than increasing the cost of running them. Improving gas mileage does not necessarily require reinventing the wheel, or even the SUV. The National Academy of Sciences concluded in 2001 that technologies already exist that could "significantly reduce fuel consumption within 15 years."

There's a less obvious benefit too: Done properly, a higher gas tax could improve our horrendous tax system. Say Congress raised federal gas taxes by 50 cents, to 68.4 cents a gallon. (The tax is now 18.4 cents a gallon.) If the tax were implemented gradually, it would allow industries and individuals time to adjust.

Yes, a gas tax is "regressive": It hits lower incomes harder. But the gas-tax increase could be offset by reducing payroll levies, which are the most regressive taxes of all. The middle class surrenders a disproportionate amount of wages to Social Security and Medicare contributions. (Only people making $75,000-plus a year pay more in income tax than for Social Security and Medicare.) Shifting some of the tax burden from payroll to gas consumption should thus leave many people better--or at least no worse--off. Gas consumption can be controlled to some extent by driving less or driving smarter; a tax that begins with the first dollar of declared income is inexorable. Sure, someone who drives an hour to work each way is going to be more affected by a gas-tax increase than carless yuppies in Manhattan. But no tax applies to all 290 million of us with precisely equal force, and a payroll offset mitigates the unfairness substantially.

Fiddling with the payroll tax would be complicated because of the link between contributions and benefits when it comes to Social Security. If Congress doesn't want to go there, an alternative would be to use gas-tax revenues to raise the earned-income tax credit, which goes to lower-income working families, or to add a fuel-tax credit. But that's really a matter of detail, not principle: The beautiful minds that created our tax code can no doubt cope with this.

The choice is simple. We can pay more for oil, and keep more of that wealth at home in the form of government revenues and increased efficiency. Or we can pay less, and ship ever more petro dollars to people who hate us.