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.