>Raise the Gas Tax Now?


According to Gasbuddy’s graphing tool, the average retail price of unleaded regular gasoline has dropped from $4.08 per gallon to $2.57 per gallon. A big part of it is the slowdown in the economy, and it’s generally bad to raise regressive taxes in a slowdown, but I think this represents an opportunity to raise the gas tax and rebate the revenue on a per capita basis, or start building already proposed light rail/streetcar lines. When the price is already declining, an increase in the gas tax is less likely to be objectionable to consumers.

My proposal is that for every ten cents the price of gasoline declines from a local maximum, raise the gas tax by one cent. In this case, since the price of gas dropped by $1.50 per gallon over the past five months, then over the next twelve months raise the price by fifteen cents.

The Highway Fund, which receives the lion’s share of the 18.5-cent federal gas tax, recently needed an $8B infusion of cash to remain solvent and continue funding construction projects. According to the LA Times, President Bush originally opposed transferring general funds to support highway construction, but eventually decided not to veto a bill in September. The fund is quickly depleting because of a reduction in driving, higher fuel efficiency leading to fewer gallons purchased, and escalating highway construction costs. Additionally, the tax is not indexed to inflation or the price of gas.

According to the Energy Information Administration, the US supplied 3.4 billion barrels (105 billion gallons) of finished motor gasoline in 2007, the latest data available. My proposed 15 cent tax would collect $15.8 billion per year. Sending $8 billion of that to the Highway Fund would avoid a transfer of general revenues, and the remaining $7.8 billion could be turned into a $30 tax credit per person (or reduce federal payroll taxes of 7% on the first $1000 per year or so of wages). Alternatively you could fund almost every proposed urban rail project out there with a grant. There are 18 cities listed at The Overhead Wire as “transit space race participants”, each of which could get $400 million. Or there are 66 listed on Lightrailnow.org as “Planned/Under Development”, which would reduce the grant to $100 million per city. $400 million is about half of the federal grant for the Dulles Rail project, and $100M is enough to fund one four-mile starter streetcar/light rail line with no frills.

That’s per year. What could you do the following year? Find three dozen additional cities that want a new light rail line and build them? If you keep doing this, how long until our downtown light rail networks start being so good that car-free or minimal-car living is a reality for the vast majority of urban dwellers in the US? What do you think that would do for the price of gas? Do you think it could drop the price somewhere around fifteen cents? Isn’t that where we started?

You’d be getting gas that was nine cents cheaper instead of ten, or $1.35 cheaper instead of $1.50, and in exchange you don’t go into debt to build highways, and dozens of new transit lines get built, thus dropping the price of gas even lower. Combine it with land use changes, plug in hybrids, market-based parking pricing, and better cycling/pedestrian infrastructure, and you’re looking at a policy that has the potential to cut oil usage drastically year-over-year.

About perkinsms

I'm an engineer and father interested in transit, parking and economics.
This entry was posted in budget, cars, economics, gas, politics. Bookmark the permalink.

6 Responses to >Raise the Gas Tax Now?

  1. Geoff says:

    >I vote for raising the gas tax.It will also help set some price floors for alternative energy plans to work with.Note that when the “recession” ends prices will fly even higher than before.This is also politically impossible.

  2. Squalish says:

    >I disagree on several counts:1) Raising it 15 cents is not nearly enough to establish a reasonable price floor for alternative energy, and a $30 tax credit is not enough to generate political demand to make this possible.2) It's *not* easier to tax a dropping price. You can make gas taxes politically possible relatively easily if you promise, with a political machine behind you, that you'll be attacking the oil companies in a time of massive profits & high demand by taxing them directly, and rebating the full amount to Americans on a per capita basis.3) The economic slowdown & the change in actual amount of gas consumed(via efficient cars etc) is practically a rounding error in the gas tax program. Since it's based on a fixed fee per gallon rather than a percent, it also hasn't been affected by the much more dramatic drop in oil/gas prices. The budget overrun is solely because the gas tax is too low for the amount of spending that the federal highway fund has done. The reduction in demand has driven down monthly revenues for the fund from $2.8B to $2.7B, while the monthly expenditures are $4.4B.4) Pass a law mandating that taxes be automatically adjusted, once per month, to a level sufficient to pay off 1/12th of the last year's approved highway spending plus interest, and you've solved the problem of highway funding (if this passes constitutional muster and Congress retains nominal control over the highway fund).

  3. Michael says:

    >1. I was looking more for what’s politically feasible rather than what would force the issue on alternative energy. I think the most important thing I found was that with very small amounts per gallon it would be possible to fund a large amount of urban rail, which could be expected to reduce demand for gasoline.2. I think what I showed is that the amounts of money to be refunded are likely to be low. If you raised the tax $1.50 instead of $0.15, then you might have a per capita grant of $400-500, but likely less because of a reduction in gas consumption.3. I’ll agree that the gas tax should have actually been indexed either to inflation or to the price of gas. Thanks for the data concerning the fund revenues and expenditures. Where did you find them?

  4. Squalish says:

    >From the LA times article you linked, though it conforms to what I’ve read elsewhere. A vast over-expenditure has trashed the fund in recent years, much greater than the tiny shortfall of the lowered revenues – Congress shoves too much funding down their throat, Congress gets to feed them supplemental emergency appropriations.

  5. Squalish says:

    >*Too much spending

  6. Michael says:

    >Squalish: You bring up a good point. I think of all federal “pork” projects, highway spending tends to be one of the big categories. Is that because of a flaw in the FHWA or FTA funding decisions? Congress has set broad policy for how to fund construction projects, but then individual members feel like the administration doesn’t fund their “important” project so they have to get an earmark?I’ll admit that I don’t really know how funding works on the federal level.

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