Thanks for the strength of the dollar and the competitive threat from frackers, the price of oil has declined precipitously, resulting in gas prices close to the levels that existed when President Obama was inaugurated. Some legislators—including a few Republicans—see this as an opportunity to raise the gas tax. Raising it might not be the worst idea, but not for the reasons they claim.
The federal gas tax is currently 18.4¢ per gallon. State tax rates vary but average about 30¢ more. The federal portion of the gas tax is supposed to finance the transportation infrastructure through the Federal Highway Trust Fund (FHTF). On paper, this sounds like a good idea. Consumers pay for road upkeep directly based on their road usage and indirectly through the prices of goods and services that are transported by trucks. It’s not a perfect system—for example, consumers with low mileage vehicles end up paying more per mile—but it’s a use tax that everyone has to pay in rough proportion to the benefit they receive. Unfortunately, the system doesn’t actually work this way.
Even with the FHTF, the President and others are constantly complaining about our “crumbling infrastructure.” In fact, the $787 billion stimulus package passed in 2009 was supposed to “create shovel ready jobs” to alleviate this and other problems. Obama’s subsequent admission that many of the jobs didn’t turn out to be so shovel ready after all highlights the reality: Although use taxes are the most rational way to pay for vital public services, politicians rarely honor their original intention; they typically seek to supplement them with more taxes from the general fund or use the money for other projects.
State lotteries are a great example. Their “profits” are typically earmarked for specific, popular projects—usually education—but other state appropriations for the same purpose tend to decline as lottery contributions increase. In the end, expenditures on education might be a little higher than they otherwise would have been, but a big chunk of the lottery money finds itself in other coffers.
My point here is that a use tax is the most rational means of paying for government services, but the system must be honest. Supporting an increase in the gas tax to fix our “crumbling infrastructure” assumes that highway allocations from the general fund wouldn’t be reduced to offset the increase in gas tax revenues. The extra general funds replaced by those from the increased gas tax could be used for, say, “free” community college education or government childcare programs. By the time the 2016 elections roll around, we’d have higher gas taxes, the same roads, more government programs, and continued calls by politicians for more revenues to fix our failing bridges and roads.
Should we oppose an increase in the gas tax? Not necessarily. In fact, I would support an increase in the tax as long as (1) all gas tax funds generated pay for highway maintenance and, (2) rates for all of the federal income tax brackets are reduced by the same percentage to completely offset the gas tax increase. This change wouldn’t have a substantial effect on economic growth and the entire tax code needs to be overhauled anyway, but an even trade of a lower income tax for a higher use tax is rational economic policy. Moreover, it calls the bluff of statists who claim that their proposal to raise the gas tax isn’t really about raising taxes.
Let’s face it, we need revenue enhancements if we’re going to balance the budget. Republicans should partner with Obama to get this done. An increase in the gas tax will help. We can raise it to $1 and still have gas below $3. This is an opportunity. Real conservatives should support this tax if it balances the budget.
The feds shouldn’t be building the roads anyway. Abolish the federal tax and let the states do it.
A side note…I agree with the essence of Constitution1988’s point. The U.S. Constitution refers to “postal roads” so its involvement is not necessarily unconstitutional. However, the clause was not intended to authorize the federal government to construct and maintain a massive highway system. I was not addressing the federal/state issue with regard to transportation and interstate commerce. My focus is on (1) the folly of most trust funds and “lock boxes,” (2) the preference for use fees/taxes for specific purposes over broad taxes that convolute the entire tax system, and (3) my desire to call the bluff of would-be gas tax hikers by offering them an even trade they will reject.
I’d support raising the gas tax due to the current low prices. It is one of our most fair taxes – you pay for what you use – as long as the revenues goes specifically to highway infrastructure. However, will the tax be lowered when the price inevitably goes back up? Never.
This blog should be required reading for Economics 101 at all high schools, every update is spot on. However, this is the first time I disagree with Mr P. I would never, ever agree to a raise in any tax, or the institution of a new one. Our rulers in DC are liars and thieves. They will take more of our money and waste it. They will never balance the budget, they will never pay down the debt. There in no incentive on their part to do so, nor is there any accountability by the citizens. The number of people in this country receiving free stuff (cell phones, health care, college education, food stamps, etc) is greater than those actually paying for their own stuff. The government has won, it’s just a matter of time until the last of us simply give up. I’d estimate around 2025.
Nothing to see here citizen, now here’s another juice box and free WiFi…..
I get Velvet’s point, but sometimes we are afraid to meet the left head on. They want to raise the gas tax like they want to raise every tax. Call them on this and even go along IF they are willing to cut a worse tax to counter it. Send a bill that does this to Obama and see if he signs it. We all want big changes in Washington but sometimes we have to take a bite at a time. The Democrats are better at this than we are.