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Gas Tax

The Economist: “Rock-Bottom” U.S. Gas Tax Makes Gas Cheaper Than Water

11:51 AM EST on February 24, 2011

Gas prices are up to $3.23 a gallon this week, according to AAA. But before drivers complain about "pain at the pump," they should compare U.S. gas prices to those in the rest of the developed world. A liter of gas costs about 80 cents. A liter of Fiji bottled water costs about $4.00.

According to Ryan Avent at the Economist, the low prices are "almost entirely due to the rock bottom level" of gas tax rates in the U.S. Avent goes on:

The low cost of petrol encourages greater dependence; the average American uses much more oil per day than other rich world citizens. This dependence also impacts infrastructure investment choices, leading to substantially more spending on highways than transit alternatives. And this, in turn, reduces the ability of American households to substitute away from driving when oil prices rise.

The gas tax brings in far less than it did back in 1993, the last time it was raised, because of greater fuel economy in cars. And it's a set price and not indexed to gas prices (which are three times higher than they were in 1993.)

Avent concludes, "It's hard to take any fiscal hawk seriously so long as this measure isn't on the table. It's as close to a win-win solution as one is likely to find."

The idea may be finally gaining traction. Everyone from the deficit commission to some U.S. Senators are warming to the notion that a gas tax hike is the best way to pay for the ambitious transportation agenda that President Obama laid out and finally address some of the country's backlogged infrastructure needs. According to our back-of-the-envelope calculation, we estimate that we could raise $556 billion over six years by roughly doubling the federal gas tax (bringing it up to 39.3 cents a gallon for regular gas; 52.2 cents for diesel). And it would still be puny compared to other developed nations.

Business Insider magazine has an editorial today called, "It's Time For a Gas Tax." Tom Friedman proposed a one-dollar gas tax hike in the New York Times this week. Indeed, you could add a dollar to our gas tax and gas would still be a bargain compared to some countries. But it could be just enough to encourage more sensible transportation options.

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