With or Without Tougher CAFE Rules, Today’s Gas Tax Is Unsustainable

Source: ##http://www.cbo.gov/publication/43198##CBO##

Would stricter fuel economy rules bankrupt transportation funding in America? The Congressional Budget Office seems to think so, but environmentalists are quick to say that the system was hurtling toward bankruptcy anyway.

Under a new rule proposed by the NHTSA and the EPA, CAFE standards are expected to raise the average fuel economy of the new-vehicle fleet from 34.1 miles per gallon — the average anticipated for 2016 and beyond under current standards — to 49.6 mpg. That’s fantastic news for the environment, but for those counting on gas consumption to pay for essential infrastructure, a recent CBO study suggests it would be a disaster.

Just how big a disaster is a matter of some dispute. The CBO says that between now and 2022, revenues — already insufficient to meet transportation needs, already causing endless gridlock in Congress — would shrink by $57 billion. By the time most cars on the road are in compliance with the new standards, about 2040, the CBO says that would mean a 21 percent drop in funds available for infrastructure spending.

Deron Lovaas of NRDC says the CBO is “sniffing fumes” with its analysis:

To set the record straight, the correct estimate is a loss of $2.5 billion over those 10 years—a reduction of just one percent of the current revenues. The CBO actually noted this themselves in small print in a footnote on page six of the report: “The new CAFE standards would not take effect until 2017, so they would reduce gasoline tax revenues between 2012 and 2022 by less than 1 percent, CBO estimates.”[1]

During 2012-2022, the actual fuel-efficiency-related revenue reduction pales in comparison to the shortfall of $147 billion that CBO estimates in their baseline case without the fuel-efficiency improvements. The $100 billion-plus gap between supply and need from the outdated revenue system is the real issue…

Consequently, it’s fair to say CBO understated the crisis in transportation finance when looking back and vastly overstated the role of fuel economy standards on finance looking forward.

Either way, in the long run it only makes sense to disassociate fuel consumption from the Highway Trust Fund.

Fuel economy is indisputably a good thing and one that should be incentivized with higher gas prices — and raising the gas tax can help accomplish that. But if people drive, they should also pay for the congestion they cause, the infrastructure they use, and the infrastructure that keeps other people from causing even more congestion.

In an era where people are driving less and opting for more fuel efficient vehicles, the gas tax is an inadequate way to pay for infrastructure. Fuel usage is increasingly unrelated to how much congestion or wear and tear a driver causes. Electric vehicles, hybrids, smart cars and other fuel-sippers are starting to sever that connection.

The conversation over raising the gas tax must be accompanied by a discussion of how to replace the gas tax with something more sustainable.

  • Anonymous

    “The conversation over raising the gas tax”
    I believe republicans are fighting to reduce the gas tax, get rid of cross funding for mass transit and privatize infrastructure.  

    Although I am a Green I will be voting for Obama and unfortunately he will not win. I think Democrats need to come to this realization and get a transport bill through before the Republicans put something worse in place next year. 

    As we know the Tea Party does not compromise and would rather watch the US economy collapse than to agree to any proposals from the Dems.  With this in mind how about this idea?

    1) Kill the federal gas tax (let the tea party morons feel happy)
    2) Franchise the federal highway system (do not sell the assets and land) and create user fees, based on maintenance and operational costs, to be regulated by the DoT (loss of federal control will be enough for the tea party to deal with regulators)
    3) States will then have the option to “opt in” to the federal user fee scheme (maybe some devise you have in your car that tracks mileage) and they can then choose similar measures within their state using the same devise used on the federal system. 
    4) States can use their gas tax to cross fund mass transit or not (sorry red states)
    5) A federal mass transit fund can be created with no connection to the highway fund by charging congestion fees on the federal system and opt in states (using the same device as used for the user fees).

    + Creates a few thousand jobs designing and implementing a user fee charge system
    + Decreases maintenance costs by using regulated franchises (should have lower cost structure than the federal gov’t) 
    + Provides the option for congestion charging
    + Provides a uniform charging system on federal roads
    + Covers maintenance and operational costs
    + Gives more power to the states to determine their transport futures
    + Tea Party may accept it

  • Anonymous

    Not this nonsense again.  The gas tax is nearly the ideal way to pay for road related costs from surface repairs to highway patrol salaries.  It makes user pay for what they consume and puts largest cost on those that do the most damage to the road system.  Heavy vehicles cause more wear and tear, and consume more gas per mile, thus paying more tax.  High efficiency cars are light in weight, do less damage per mile, and pay less tax.  What this means is that as time goes on, and we shift to driving smaller cars less miles, the amount of money we spend on our road system should natually DECLINE.  That’s bad news for special intersts banking on ever increasing spending, but good news for our economy .

    What we really need to do is make the gas tax a PERCENTAGE of the gas price rather than a fixed amount per gallon.  This way, as the price of fuel increase, the amount of revenue collected will keep up with the increasing costs of our highway system.

  • Anonymous

    AustrianSchool,

    Your kidding right?  A percentage based gas tax? You realize that oil prices are on of the most volatile products? What happens to highway funding if the price of crude drops from $100/b to $40/b?  You could end up bankrupting our entire transportation system in a year. Not to mention there would be way too much temptation for politicians to draw off the fund when prices are high…which is what happens all to frequently in Europe. 

    You also miss the point that as demand drops the gas tax can’t fill in the revenue gap, therefore other methods of revenue collection are required such as tolls, user fees, congestion charging, vehicle registration, etc… 

    Your argument that gas tax is fair is unrealistic as a hybrid Honda Civic does just as much damage to the road as a gasoline or diesel Civic and creates the identical congestion but using a gas tax it would pay a fraction of the cost.  Let alone the hybrid Civic already receives an environmental incentive through lower licensing fees so you are essentially giving it a double credit for fuel use reduction.  If you want to discourage the use of conventional fuels that’s fine.  Continue using a gas tax but make that an environmental tax and reallocate those revenues to subsidize/encourage the use of alternative fuel vehicles.  But remember that a large portion of a cars environmental impact is related to production not use, so encouraging people to trade in vehicles before they are ready to be retired to encourage the use of more efficient vehicles is actually not a benefit for the environment. 

  • Anonymous

    I agree with Austrian on user fees, but I think a VMT would be better than an excise or percentage tax on gas. You decouple the user fee from the price of a volatile commodity and establish a better link between usage and funding for maintenance and you’re not dicked around by fuel standards. It’s not perfect, though. 

    The implementation may generate some concern for privacy advocates. Perhaps instead of a GPS unit usage could be reported while random drivers are spot-checked for compliance. Fines would cover those not caught. 

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