Feds batting around gas tax

The federal government cut taxes only now to direct them elsewhere? (Photo/Shutterstock)

The federal government cut taxes only now to direct them elsewhere? (Photo/Shutterstock)

U.S. Chamber of Commerce president Thomas J. Donohue is preparing for an uphill battle to push for a raise of the federal gas tax by 25 cents per gallon to help shape the debate about upgrading U.S. roads, bridges, airports and other infrastructure. The Chamber, a lobby with close Republican ties, announced the push for the increase to be phased in over five years and indexed to inflation.

“I’ve been pushing this for a long, long time, but now gangs of people are pushing it,” Donohue said in an interview in which he also said immigration reform would be critical to ensuring that sufficient labor is available for public works projects.

Ironically enough, in private meetings, Trump has already floated the idea of raising the federal gas tax by as much as 50 cents per gallon but received a chilly response from his own party. Nevertheless, an increase hasn’t been taken off the table.

“We cannot build a 21st century economy on 20th century infrastructure. This year can and must be the year of major infrastructure investment. We have the political will, the bipartisan support — and we certainly have the need. Now it’s time for action,” says Donohue.

The Chamber’s 25-cent increase would be applied to the current tax of 18.4 cents per gallon for gasoline and 24.4 cents per gallon for diesel. The gas tax hasn’t been updated since 1993. Some estimate the increase to achieve more than $375 billion over the coming decade. While an easy button feels good, is that really more or less than the U.S. needs, and how is anyone to know? How is that money allocated?

According to the Tax Foundation, gas taxes do conform relatively well with the public finance concept known as the “benefit principle,” meaning the gas tax revenue accumulated from drivers goes toward the provision of government services that benefit drivers: construction, maintenance, and repair of roads. This connecting of road costs with the people who use the roads encourages efficient use, minimizing traffic and road wear.

In fiscal year 2013, however, gas taxes, tolls, and motor vehicle license fees covered just 41.4 percent of state and local road spending. That percentage is falling over time as state gas tax rates in many states are not indexed for inflation, so the revenue they accumulate has weaker purchasing power each year. Of course, cars are also becoming more fuel-efficient all the time, and that makes for less gas tax collections each year as well.

One unintended consequence of lower fuel tax revenue is that legislators are occasionally tempted to seek road funding from more growth-damaging taxes like income and sales taxes, whose payers may or may not be heavy users of roads.

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As previously reported by FreightWaves in late October, seven states — California, Indiana, Montana, South Carolina, Oregon, Tennessee and West Virginia — passed legislation to increase fuel taxes (although most of these were states were trending below the national average, as can be seen on the above graph). State transportation departments and advocates of infrastructure investment consider these hikes last-ditch responses to longstanding inaction at the federal level.

While everyone wants improved infrastructure, especially to address the needs of forthcoming technology and transportation disruption barreling ahead at disorienting speed, is a federal gas tax really the answer? How will states respond to their current tax policies?

According to the Washington Post, "The typical driver would pay about $108 more per year, but that could be offset by the benefits of better roads, in the form of reduced traffic and less vehicle damage. It’s also a rough — too rough, admittedly — proxy for a carbon tax, which would help the environment."

$108 per year? That's a hard number to assess, especially when "typical" isn't defined by miles, nor fuel price, nor what this means for states with already high gas taxes, nor especially to commercial freight drivers -- and what does it mean to transportation?

The Rand Corporation suggests a slightly different scenario than the scare tactics often employed by the government and media. No doubt, the United States' transportation and water infrastructure needs are "diverse, as are the reasons for maintenance backlogs and delays in rebuilding and modernization." They note that federal spending to repair or rebuild may do some good by stimulating demand for construction, but will not fix what is already broken toward funding and financing public works.

And by the way, not everything is broken.

Lasting changes will require thoughtful consideration of targeted spending priorities, policy constraints and regional differences. Rand has a series of complex and long-term recommendations. Complex and long-term are hard than easy-expensive, one-stop-shop solutions that make some people feel better about everything.

Here are seven other possibilities, all of which require long-term strategic policy-making, as well as bipartisan cooperation, something that seems less-and-less likely in the polarizing context of our times. All of these, however, are preferable to the "easy button" of federally-mandated tax increases. 

(1) Preserve the federal tax exemption on interest earned from municipal bonds for at least the next decade.

(2) Reinstate Build America Bonds (BABs) with taxable interest for a ten-year period and experiment with other financing alternatives.

(3) Target longer-term projects likely to produce significant national benefits. Focus on capital investment, including major investments in renewal of aging infrastructure and new infrastructure incorporating advanced technologies.

(4) Prioritize maintenance of federal assets, such as mission-critical military bases, dams, levees, locks, national parks, and other vital federal infrastructure.

(5) Make resilience to natural disasters and adaptation to rising seas, increasing flood frequency, and other changing climate impacts a condition for spending.

(6) Streamline the regulatory review process among multiple federal agencies.

(7) Consolidate the U.S. Army Corps of Engineers and the U.S. Bureau of Reclamation into an integrated national water resource agency. Fund competitive grants for research, development, and deployment of new technologies.

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