Pandering at the Pump

Though economists support a higher gas tax, convincing lawmakers is a challenge

Full Faith and Credit

If you’re an American politician, there are many ways to commit political suicide in spectacular fashion. You can disappear for days to pursue a steamy Argentinian affair. You can vow to help O. J. Simpson search for the “real killer.” But if you really want to go out with a bang, you can propose a bill to raise the federal tax on gasoline.

The United States has, by far, the lowest gas tax in the developed world. The federal tax has stood at 18.4 cents per gallon since 1993, despite inflation and changes in gasoline prices. Gas taxes help fund transportation projects and encourage consumers to use oil efficiently. Economists favor this form of taxation, as it factors the negative effects of gasoline usage (traffic, road damage, pollution) into its price.

But lawmakers, pandering to drivers, steadfastly refuse to consider increasing the gas tax. This shortsightedness has serious economic and environmental consequences. Although a major investment in our transportation infrastructure is long overdue, the Federal Highway Trust Fund, which uses gas-tax revenue for road construction and repair, is near broke. This necessitates yearly billion-dollar infusions from the federal budget and discourages new transportation projects. Even the U.S. Chamber of Commerce, not exactly a tax-happy bunch, favors a higher gas tax, since better transportation infrastructure will benefit businesses.

America’s vehicle fleet is a major source of greenhouse-gas emissions, largely due to the popularity of SUVs and pickup trucks. As gas approached $4 per gallon last year, Americans eschewed gas-guzzlers in favor of fuel-efficient vehicles. But now that oil prices have fallen, consumers can return to their old habits. A higher gas tax would encourage these consumers to purchase fuel-efficient cars and would give Detroit an incentive to manufacture hybrids and electric vehicles.

Although most experts favor a higher gas tax, they disagree on what form it should take. Several states and the House Subcommittee on Highways and Transit have studied the feasibility of supplementing the existing gas tax with a per-mile road usage fee. Vehicles would be retrofitted to track and tax the number of miles traveled. Essentially, in the words of the Beatles’ “Taxman,” “If you drive a car, I’ll tax the street.” But the per-mile fee does not address differences in vehicle emissions; a Prius and a Suburban that cover an equal number of miles would pay the same fees. This proposed solution is also much more expensive to administer than a simple gas tax. Worst, the intrusive nature of installing mileage trackers onto vehicles would make the road fee unpopular—just try telling Idaho survivalists that Barack Obama wants to monitor their driving.

But even an ordinary increase in gas taxes poses a new question: Should it raise revenue for new spending? Energy economist Phil Verleger estimates that a $1 increase in the federal gas tax would raise $140 billion. Worthy proposals abound as to how this tidy sum could be spent. A 10-cent gas-tax hike could partially fund Rep. Jim Oberstar’s proposed transportation bill. New York Times columnist Tom Friedman recommends using gas-tax revenue for health-care spending and deficit reduction. Others would invest in renewable energy subsidies. Unfortunately, it would be politically radioactive to enact a steep new gas tax during an economic downturn. Republicans would accuse President Obama of violating his pledge not to raise taxes on the middle class; the attack ads would write themselves.

To overcome this challenge, the $1 increase in the gas tax should be made mostly revenue-neutral and should be phased in over three years. Spending on transportation projects should still account for 10 percent of the revenue due to the dire state of the Highway Trust Fund. But taxpayers should receive the remainder as a refund in the form of lower payroll taxes. This would boost incomes while giving businesses an incentive to hire new workers. At the same time, the rebates would not compromise the gas tax’s effectiveness at reducing consumption. Higher prices at the pump will still encourage Americans to drive less and purchase fuel-efficient cars.

While opposition to higher gas taxes may make politicians winners on Election Day, Americans lose in the long term. A revenue-neutral tax would improve America’s transportation network and reduce its greenhouse-gas emissions while giving lawmakers political cover to support it. Maybe voting for higher gas taxes isn’t political suicide after all.

Anthony P. Dedousis ’11 is an economics concentrator in Leverett House. His column appears on alternate Thursdays.