Thursday, March 15, 2012

Learn to Love the Gas Tax

The North Carolina legislature just narrowly derailed a bill that would have prevented any possible increase in the state's gasoline tax. That's a good thing. By that I mean it's good that the state Senate declined to act on the bill after it passed in the House.

You see, if enacted, the state's 35 cent per gallon tax would have remained at that level through June 30, 2012 rather than being recalculated automatically twice annually (Jan. 1 and July 1) based on a formula linked to wholesale gas prices. Without that cap it is estimated that the tax could grow to as high as 38.9 cents per gallon (or 57.3 cents per gallon with federal tax added).

Why is capping the gas tax a bad idea? Well, because North Carolina -- like every other state in the country -- desperately needs every penny (and more) that can be generated by this user-based fee collected at the pump in order to pay the escalating costs for repairing, maintaining and upgrading roads, bridges, railways, public transit and every other form of transportation upon which our communities and economy depend.

That cap would have meant $95.8 million less in revenues in North Carolina.

"If we don't have these dollars to look after our highway system," said Rep. Jim Crawford, D-Granville, "we're making a sad mistake."

Indeed, the NC Department of Transportation warned that capping the state gas tax for six months would delay 400 miles of road resurfacing and 72 bridge repairs already in progress. The cap also threatend up to 2,800 construction jobs, according to the Carolina Asphalt Pavement Association.

But the fact that such an economically calamitous measure sailed through the House with widespread Republican and Democratic support shows how politically unpopular the gas tax is -- not just in North Carolina but everywhere.

Partly that is because most Americans don't fully comprehend the transportation crisis our country currenty faces. Throughout history, America has built some of the world's best roads, bridges and railways, offering people freedom to travel, do business and enjoy a quality of life unsurpassed in most of the world. For decades, our infrastructure has worked so well that it was taken for granted. Today, however, years of neglected repairs, a harmful dependence on oil and a broken funding system have left our nation's transportation infrastructure in desperate need of an overhaul. Suffice it to say, the price tag to accomplish this herculean task is staggering.

Alas, federal elected leaders have refused to take the necessary steps to invest in infrastructure at the levels required. And even though transportation experts across the political spectrum agree that gas taxes should be raised, not lowered, to pay for necessary transportation costs, most politicians refuse to raise the federal gas tax. The last time they did so was in 1993 -- and that 18.4 cent per gallon rate has long since been dwarfed by rising inflation. Consequently, the states have been forced to step up to the plate and enacted their own gas tax increases, sales taxes on gasoline, toll fare hikes, and whatever other politically palatable stopgap measure they can use to try to keep the system running.

Clearly, when it comes to a dedicated source of revenue to fund transportation the gas tax is the most straightforward route. But anti-tax fervor is strong these days, understandably exacerbated by the current economic slump. Some see the gas tax as the most hated of all taxes. But the gas tax gets a bad rap.

CNN recently did a great service by publishing Five Myths About Your Gasoline Taxes. The story explains how cutting the gas tax exacts a steep cost on the entire economy. The gas tax, which funds a broad range of economy-bolstering transportation projects across the country, is woefully low to meet current (and future) infrastructure needs. Here's a summary of CNN's debunking of the myths surrounding the maligned gas tax.

Myth #1: Americans already pay too much in gas taxes.

Nope, not even close. America actually taxes gasoline less than most other nations. Only two countries---Kuwait and Saudi Arabia---charge lower gas taxes than the U.S. and both are net global oil suppliers, not consumers. As the world's largest oil consumer, the U.S. under-prices gasoline -- and thus under-taxes gas -- which encourages our over-dependency. Besides, the federal gas tax does not even come close to covering the wide array of external social costs of driving cars and trucks.

Myth #2: Gas taxes rise every year.

The federal gas tax has remained unchanged at 18.4 cents for a gallon of gasoline for nearly two decades. It is not indexed to the price of crude oil or inflation, so Americans pay a fixed amount whether oil prices are high or low. Taking inflation into account, the gas tax has eroded to only 11 cents today. This has seriously diminished the ability to pay for infrastructure, with a purchasing power of 45 cents in gas taxes for every dollar in national highway construction costs. This means that only one-half of the transportation investments made since 1993 could be afforded today, even though GDP has grown 55% and demands (vehicle miles traveled) have grown 29%.

Myth #3: Gas taxes are unnecessary because the transportation system is paid for in other ways.

Wrong. America's transportation fund is running on fumes. Revenue for the Highway Trust Fund is derived almost entirely from federal gas taxes and distributed to all 50 states. It covers nearly 80% of the capital costs of federally-funded transportation projects, with states carrying the remainder. From 2008 to 2010, Congress transferred $34.5 billion from general fund revenues to make up the funding shortfall. This stopgap measure was necessary to continue projects that are already in the works. Moreover, deferred maintenance -- the failure to care for existing roads and bridges -- combined with lost productivity are estimated to add more than $100 billion to the national deficit annually.

Myth #4: Transportation taxes are detrimental to American competitiveness.

In reality, the reverse is true when it comes to gas taxes. Investing in transportation facilitates reinvestment in America that is vital to economic growth. The U.S., once No. 1 in the world for its infrastructure, has fallen to 15th. China and India are cruising ahead with transportation infrastructure investments each at 9% of GDP compared to 2% in the U.S. This lackluster level of investment prevails despite well-documented needs -- aging infrastructure, growing population, and shifting demographics. An upgraded, well-maintained, operationally-efficient transportation system, on the other hand, offers a significant competitive edge. Plus, the gas tax spreads the burden over hundreds of millions of system beneficiaries.

Myth #5: Gas taxes make an already volatile gasoline market even worse.

Nope. Domestic gas prices are largely influenced by world oil markets. With transportation accounting for about 70% of U.S. oil consumption and record oil-company profits reached when world oil prices go up, it's only fair that oil companies share the cost of providing transportation infrastructure. Structuring an oil fee assessed on producers and a variable gas tax paid by consumers can further stabilize the price at the pump. When oil prices go up, the retail gas tax can be abated. The oil security fee will make up for the revenue gap. When oil prices go down, the gas tax can be slowly reinstated. There isn't much that can be done about external events that affect global oil price volatility, but gas taxes can be designed to better manage abrupt price swings domestically.

The CNN piece also makes the additional point that higher vehicle mileage standards further warrant a gas tax increase:

Beyond system efficiency gains, vehicles themselves are becoming more fuel-efficient and less wasteful. A proposal to double car- and SUV-fuel economy standards by 2025, while highly beneficial in terms of energy will translate into lower gas tax expenditures by higher-mpg cars. The rational way to deal with this is to increase gas taxes slightly over time to account for the fiscal impacts that cleaner, more efficient cars have on transportation infrastructure investments.

And the article makes a powerful closing statement:

In short, the transportation system is a critical component of America's economy. The United States cannot be a superpower if it starves public investment in infrastructure. Taxes tend to be more politically acceptable when people understand how funds provide benefits. And nobody understands better than travelers that the nation's infrastructure needs serious improvements. It's time to face the fact: The gas tax is a good way to invest in America.

As you can see, any rational assessment of the dire fiscal circumstances the country faces with our transportation system should strengthen public support for the gas tax and political resolve for it to be increased. So raise your hand if, like me, you not only oppose cuts in gas taxes but also favor raising them!

View the original article here

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