Thanks for the strength of the dollar and the competitive threat from frackers, the price of oil has declined precipitously, resulting in gas prices close to the levels that existed when President Obama was inaugurated. Some legislators—including a few Republicans—see this as an opportunity to raise the gas tax. Raising it might not be the worst idea, but not for the reasons they claim.
The federal gas tax is currently 18.4¢ per gallon. State tax rates vary but average about 30¢ more. The federal portion of the gas tax is supposed to finance the transportation infrastructure through the Federal Highway Trust Fund (FHTF). On paper, this sounds like a good idea. Consumers pay for road upkeep directly based on their road usage and indirectly through the prices of goods and services that are transported by trucks. It’s not a perfect system—for example, consumers with low mileage vehicles end up paying more per mile—but it’s a use tax that everyone has to pay in rough proportion to the benefit they receive. Unfortunately, the system doesn’t actually work this way.
Even with the FHTF, the President and others are constantly complaining about our “crumbling infrastructure.” In fact, the $787 billion stimulus package passed in 2009 was supposed to “create shovel ready jobs” to alleviate this and other problems. Obama’s subsequent admission that many of the jobs didn’t turn out to be so shovel ready after all highlights the reality: Although use taxes are the most rational way to pay for vital public services, politicians rarely honor their original intention; they typically seek to supplement them with more taxes from the general fund or use the money for other projects.
State lotteries are a great example. Their “profits” are typically earmarked for specific, popular projects—usually education—but other state appropriations for the same purpose tend to decline as lottery contributions increase. In the end, expenditures on education might be a little higher than they otherwise would have been, but a big chunk of the lottery money finds itself in other coffers.
My point here is that a use tax is the most rational means of paying for government services, but the system must be honest. Supporting an increase in the gas tax to fix our “crumbling infrastructure” assumes that highway allocations from the general fund wouldn’t be reduced to offset the increase in gas tax revenues. The extra general funds replaced by those from the increased gas tax could be used for, say, “free” community college education or government childcare programs. By the time the 2016 elections roll around, we’d have higher gas taxes, the same roads, more government programs, and continued calls by politicians for more revenues to fix our failing bridges and roads.
Should we oppose an increase in the gas tax? Not necessarily. In fact, I would support an increase in the tax as long as (1) all gas tax funds generated pay for highway maintenance and, (2) rates for all of the federal income tax brackets are reduced by the same percentage to completely offset the gas tax increase. This change wouldn’t have a substantial effect on economic growth and the entire tax code needs to be overhauled anyway, but an even trade of a lower income tax for a higher use tax is rational economic policy. Moreover, it calls the bluff of statists who claim that their proposal to raise the gas tax isn’t really about raising taxes.