Our Stagnant Gas Tax Rate Is Making the Deficit Worse

Despite the anti-tax rhetoric of this round of elections, there’s been a little flurry of support for raising the gas tax lately. Two senators just proposed bumping it by 25 cents to replenish the highway trust fund. And the co-chairs of the National Commission on Fiscal Responsibility and Reform included a gas tax hike in its proposal for reducing the deficit by $3.8 trillion. Their proposal [PDF] is simple.

Gradually increase gas tax to fund transportation spending

  • Raise gas tax gradually by 15 cents beginning in 2013
  • Dedicate funds toward fully funding the transportation trust funds and therefore eliminating the need for further general fund bailouts
Raise the gas tax, cut the deficit. Image from Utanito via ##http://www.treehugger.com/files/2009/08/gas-tax-united-states.php##Treehugger##
Raise the gas tax, cut the deficit. Image from Utanito via ##http://www.treehugger.com/files/2009/08/gas-tax-united-states.php##Treehugger##

Well, that’s clear enough. Highways cost money. You gotta pay to pave, and Americans aren’t paying.

Bloomberg quotes leaders on both sides of the aisle who lambasted the report. “Democratic House Speaker Nancy Pelosi called the targeting of Social Security and Medicare ‘simply unacceptable,’ and Republican Representative Jeb Hensarling of Texas expressed opposition to proposals to raise taxes.” Everyone from AARP to the AFL-CIO lined up to slam the plan.

The co-chairs of the Commission even joke about the unpopularity of their proposals. “We have harpooned every whale in the ocean and some of the minnows,” said Republican former Wyoming senator Alan Simpson. Erskine Bowles, former chief of staff to President Bill Clinton, joked that they’d have to enter a “witness protection program.”

They also proposed eliminating the tax deduction for mortgage interest payments – or at least restricting the tax breaks so that second homes, expensive homes, and home equity loans weren’t eligible.

The mortgage tax break is a sprawl-inducer, encouraging people to buy “more house” for their money. Besides, home ownership rates are higher in the suburbs, since urbanites are more likely to rent. By removing the tax break, as the deficit commission recommends, they would require people to pay the full cost of the house they buy – and stop subsidizing the choice to live in the suburbs instead of cities.

Which brings us back to the gas tax. Politicians cower when drivers complain about paying more at the pump, so instead they just let the highway trust fund run dry and then raid the general fund to replenish it – meaning we’re all paying for their refusal to cover the cost of highways.

  • Roger Babson

    How about instead of a gas tax we charge bankers a counterfeiting tax for creating nonsense derivatives and pretending that mortgage-backed securities representing boarded-up, foreclosed houses are still worth anything more than zero? Better yet, why not clawback every penny in banking profits since 1973? Why shutdown anymore of the productive economy to further empower the FIRE economy and the military-industrial-education-sickcare-banking jihadi corporate banking occupation?

    I’m with you on decreasing our profilgate energy consumption though. We need more energy-efficient cars, more bike lanes, and less fat, lumbering North American land whales driving SUVs to McDonalds. Also, instead of having the lumpen proles sitting around watching television, hire them paint roofs white, install as many solar panels as possible, start building alt-power plants.

    It’s too bad Obama is an empty suit and is using the presidency as a line-item on his resume so he can get his real job at Goldman Sachs. But I guess we’ll all just keep voting Republocrat and writing empty rhetoric on blogs as a substitute for actually doing anything.

  • peternatural

    I am curious to know how much federal, state, and local governments spend on roads and highways, vs. how much they collect in revenue from the gas tax and vehicle license fees, etc.

    Do road users pay more than half the costs (directly) at any level of government? (I’m guessing the gap is biggest at the local level…)

    Seems like a great topic for a streetsblog investigation, if it hasn’t already been looked into.

  • Andy McNeil

    In theory I support eliminating the mortgage interest tax deduction. But getting rid of it suddenly would cause a sudden drop in home values and there would suddenly be a bunch of families that can no longer afford their mortgage payments. We’ve gone through that once, we don’t need to do it again. Better to gradually phase it out, over twenty years maybe. Each year the deduction reduces by 5%. Next year 95% of interest can be deducted, then 90%, 85% etc. until the deduction is gone completely.

    I’ve also supported increasing gas tax for years. And, again, if it is done gradually it would probably be harmless. Increasing it by a penny a month doesn’t seem so bad.

  • rafael

    With the gas prices so high, the revenue from gas taxes is already quite high. Why do we need to pay even more?

    I’m sick of the ever-increasing cycle of taxes.

    How about we cut back on the bloated bureaucracy that passes for “government” these days? How about we get rid of the fat paychecks? The luxurious pension plans? Why should the government bureaucrats have it so good when the rest of the country is trying to get by on foodstamps?

  • patrick

    @rafael

    The federal gas tax is 18.4 cents per gallon, and I believe most, if not all states, tax gas by the gallon as well, so it doesn’t change with the price.

    If you don’t want to raise the gas tax how do you propose we pay for road & transit maintenance & construction?

    Lastly, just so you know, currently the gas tax covers about only half of the costs of our highway system, and even less of local roads, the remainder comes from the general fund, and property taxes. We are also deferring a huge amount of maintenance that will some day also need to be paid for.

  • Dale

    These proposals were one of the pleasant surprises today. But for years now I’ve been queasy about the coupling of gas taxes with transportation. Doesn’t that feed the misperceptions of cyclists, peds, and transit users as the beneficiaries of subsidies? Why do we need “Trust funds” and “general funds”? These structures obfuscate policy debates and reduce the accountability of our elected officials.

  • hUcKiECA

    If you check your facts in CA, you will find that for 2010/2011, roughly $8.5B in state funds is budgeted for the Department of Transportation, State Transit Assistance, and the DMV. That jumps to maybe $9B when you add in high speed rail. If you look at revenues, $4.9B is estimated to come from the gas tax and $5.4B is estimated to come in the form of vehicle license fees. So not even including tolls, vehicle related taxes and fees (on a whole) do exceed transportation expenditures on a state level. Not to mention sales tax which is paid on the purchase of vehicles which goes to the general fund, and parking fees that go to support public transit on a local level, etc.

    However, all the vehicle related money gathered does not go to supporting our highway and transit systems. Part of the (steeply reduced, thanks to the guvenator) VLF goes to the general fund, etc., and when all is said and done, our politicians make it look like there’s a huge shortfall and we need to issue bonds to pay for road improvements.

    On the federal level, as far as I can tell from searching, the highway trust fund has only been depleted once, in 2008, and at that time had to be replenished with $8B of general taxpayer money. However, there have been periods in the past where money was diverted from the gas tax to the general fund as well. Still, at the federal level, the picture is much worse, and something needs to be done.

    So while Patrick’s statement about gas taxes only paying for half of our the transportation expenses, this is only a half-truth when you look at the bigger funding picture.

  • The FHWA has all the info you need, at least when you exclude property tax-funded local roads. The highlights:

    – Highway users paid about $122 billion in gas taxes and tolls in 2008.

    – Total money available for spending on non-local roads was $193 billion.

    – Another $4.3 billion was spent on collection expenses, counted separately.

    Depreciation is not counted. Construction costs are, but those are investments, not expenses, and as the US undermaintains its highway system and is not expanding it too much, depreciation exceeds construction. A study done in Texas which does include depreciation found that not a single road in the state pays for more than 50% of its costs; this study was publicized in a Keep Texas Moving newsletter, but the original link to it died in a web redesign, so you can only find mirrors. Google “Keep Texas Moving” and “Asset Value Index” for (slightly) more details.

    Licensing fees have nothing to do with it. They go to processing your license to make sure people without licenses don’t drive on the road. They’re not user fees, no matter how many lockboxes the roads movement has convinced legislatures to put around them over the last 100 years.

  • zach

    Rafael:

    Gas prices are not high.

    If gas prices were high, you would know it in three observable ways: people would drive less, carpool more, and drive more fuel-efficient cars.

    Have you noticed these trends? I sure haven’t. Roads are crowded, most cars on American highways have one person in them, and cars get increasingly poorer mileage. Those are clear signs that gas prices are low.

    Yes, gas prices are higher in dollars than they were years ago, but prices of everything (wages, rents, apples, shoes) are higher than they were. This is inflation.

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