Why It’s Time to Raise the Federal Tax on Gasoline

Twenty-two years ago, when the price of gas at the pump was $1 a gallon and a movie ticket was $4, Congress saw fit to set the gasoline tax at 18.4 cents a gallon. The idea was to ensure enough funds for the Federal Highway Trust Fund to keep our roads and bridges in good repair. Today, while almost all other prices have soared, the gas tax hasn’t budged, and the trust fund is depleted. With world oil prices crashing, we have a unique opportunity to raise the gas tax, replenish the trust fund, leverage private-sector financing and leave the U.S. consumer far better off than just a few weeks ago — all at the same time.

A number of lawmakers and senators from both parties are beginning to explore this idea. The new chairman of the Senate Commerce, Science, and Transportation Committee, Republican John Thune of South Dakota, said on Fox News on Jan. 4 that raising the federal gas tax was among the options to replenish the trust fund. A month earlier, Democratic Rep. Earl Blumenauer of Oregon proposed a 15-cent hike in the gas tax to raise an estimated $170 billion over 10 years.

Back in 1993, the 18.4-cents a gallon tax represented roughly 40 percent of the then-prevailing cost of a gallon of petroleum on world markets. The world price of petroleum has more than tripled since then, so that the unchanged gas tax has declined to around 12 percent of the world petroleum price for a gallon of gas. With highway and mass transit costs rising along with other costs, the federal gas tax no longer provides the trust fund with enough money to address the essential needs of the federal land transport system.

For the past decade, Congress has made up the shortfall in two ways. First, it has used general revenues or accounting gimmicks to cover part of the gap. The Congressional Budget Office recently projected the cumulative shortfall over the coming decade will reach around $160 billion. Second, and much more ominously, Congress has seriously delayed the maintenance of the country’s roads, bridges and mass transit systems. The American Society of Civil Engineers has regularly given the public transport infrastructure a grade somewhere between “poor” and “failing,” with an estimated backlog of some $1 trillion of needed investment.

The recent sharp decline in world petroleum prices allows us to accomplish several vital national transportation and energy goals while leaving consumers far better off. World oil prices have declined by around $60 per barrel, and by roughly $1.40 per gallon in the U.S. since June 2014. By raising the gasoline tax 35 cents a gallon — bringing the total tax to 53.4 cents per gallon — consumers would still keep three-fourths of the recent windfall savings, while the U.S. government would recoup around $50 billion per year, or $500 billion over a decade, enough to close the financing gap on the trust fund while also making a down payment on the huge arrears on maintenance of the federal transportation system.

The step would also take us part way toward the twin goals of energy efficiency and reduced greenhouse gas emissions. Adding 35 cents to the gas tax is equivalent to collecting a tax of roughly $40 for every ton of CO 2 emitted by gasoline. This is also close to the Environmental Protection Agency’s estimate of the social cost of carbon that measures the incremental damage to the environment caused by each incremental ton of CO 2 emission. The higher gasoline tax would support the shift to low-carbon 21st-century fuels, battery-electrics and fuel-cell vehicles.

The public benefits from higher gasoline taxes could be much greater than $50 billion per year in investments in highways and mass transit. Many new transport projects will yield economic benefits in the form of increased values for private property along the improved transport corridors. These higher values can in turn be a boon to government revenues in the form of tolls on new or improved roads and increased tax collections on more valuable property. By yielding a flow of revenues, these projects can be financed by a mix of public grants and private loans. In this way, a new flow of $50 billion per year could be leveraged to support $100 billion or more in new infrastructure investments.

https://www.politico.com/magazine/story/2015/01/why-its-time-to-raise-the-federal-tax-on-gasoline-114380#.VL5sFy5Wr-U