Five myths about U.S. gasoline taxes

[M II A II R II K]

Five myths about your gasoline taxes


November 19, 2011

By Shin-pei Tsay and Deborah Gordon

Read More: http://www.cnn.com/2011/11/18/opinio...ths/index.html

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In reality, cutting the gas tax exacts a steep cost on the entire economy. The gas tax funds a broad range of economy-bolstering transportation projects across the country and it is already too low to meet current (and future) infrastructure needs. It's time to debunk the myths surrounding the maligned gas tax.

- 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.


1. Americans already pay too much in gas taxes. 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. The U.S. is the world's largest oil consumer. By under-taxing gasoline -- and thus under-pricing gasoline -- the United States encourages over-dependency. Furthermore, the federal gas tax does not even come close to covering the wide array of external social costs of driving cars and trucks.


2. Gas taxes rise every year. Quite the opposite.

The federal gas tax has remained unchanged at 18.4 cents for a gallon of gasoline (and 24.4 cents for diesel) 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. Ironically, given today's debate, the last time the gas tax was raised in 1993 was for deficit reduction purposes. 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%.


3. Gas taxes are unnecessary because the transportation system is paid for in other ways. Not so fast.

America's transportation system is going broke. 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.....

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4. Transportation taxes are detrimental to American competitiveness. Wrong.

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.....

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5. Gas taxes make an already volatile gasoline market even worse. Partial thinking.

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.

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[ardecila]

I wonder why states have not stepped into the breach and raised the gas tax themselves. Many cities have formed toll road authorities, but those only pay for a limited set of improvements to the freeway system. In reality the entire system of local roads and transit systems needs serious investment as well.

[bnk]

Only two countries—Kuwait and Saudi Arabia—charge lower gas taxes than the U.S. and both are net global oil suppliers, not consumers


I question that. Check out Venezuela's [ a supplier ] gas prices.

http://money.cnn.com/pf/features/lis...bal_gasprices/


Venezuela

Gas Price: $0.10

Gas Tax:

Negative. Very negative. It takes a considerable subsidy to sell gas at 98 percent below its market value.

Details: A gallon of gas in Venezuela is said to be cheaper than water, thanks to a longtime subsidy that drains billions of dollars from public coffers that could otherwise go to infrastructure and transportation to benefit the country's poorest citizens.

http://www.theatlantic.com/business/...38226/#slide21

Thank you Hugo.

[LMich]

Originally Posted by ardecila

I wonder why states have not stepped into the breach and raised the gas tax themselves. Many cities have formed toll road authorities, but those only pay for a limited set of improvements to the freeway system. In reality the entire system of local roads and transit systems needs serious investment as well.

It's as politically unpalatable at the state level as it is at the natonal level. As shown above, Americans think they pay "too much" as it is. It's almost a political third rail. Here in Michigan, the former Dem governor (and her Dem house) didn't even want to touch a gas tax increase until 2009, something the state transit associations and organizations had been pushing for for years. The idea died about as quickly as it was broached. It's funny, because when she finally did advocate for it, they changed it to a phased in wholesale tax to make sure consumers would feel it more gradually than just plain raising it at the pump.

Last month, our new Republican governor even took out a special message to the legislature on the issue of infrastructure to advocate for the same scrapping of the tax at the pump for a wholesale tax. With the new and totally Republican-controlled legislature, it's even more dead this time than when Granholm proposed it.

[ardecila]

That's what I don't understand. There's pretty widespread public support for repaving roads and rebuilding bridges. But usually this is pitched as a sales tax initiative, not a fuel tax.

Personally I would start by switching to a percentage tax instead of the flat fee per gallon. Then increase the percentage by half again over 10 years.

[202_Cyclist]

ardecila:

I wonder why states have not stepped into the breach and raised the gas tax themselves. Many cities have formed toll road authorities, but those only pay for a limited set of improvements to the freeway system. In reality the entire system of local roads and transit systems needs serious investment as well.

Maryland is giving serious consideration to raising the state gas tax by 15 cents per gallon. Much of the revenues generated by the higher gas tax would be used to help finance the Purple line in Montgomery and Prince George's Co. and the Red line in Baltimore, both projects creating good jobs and improving mobility.

http://www.washingtonpost.com/local/...9GM_story.html

Washington state also increased the gas tax a few years ago. In neighboring Idaho, one of the nation's most conservative states, Republican governor, Butch Otter, also tried to increase gas taxes. There was an interesting paper at the annual Transportation Research Board conference last year about attempts to raise the gas tax at the state level.

[ardecila]

Thanks for the info.

Two fuel crises ago, Illinois Governor Ryan abolished the gas tax for a year.

[202_Cyclist]

Here is the TRB report about state efforts to raise the gas tax that I mentioned above.

Gasoline Taxes: An Examination of News Media Discourse Related to Gas Tax Funding in Six States

"The University of Vermont Transportation Research Center has released a report that examines how proposed gasoline tax hikes were framed in the print news media to see if these frames can provide clues to the eventual policy outcomes."

http://www.uvm.edu/~transctr/pdf/Gas...-Discourse.pdf

[quattordici]

Raise the tax and put it toward mass transit (or at least a portion of it). Just like cigarette taxes to supplement healthcare.

It'd be nice of states would look at this, but the ones that need it the most are vehemently opposed to raising taxes in any form and additionally oppose mass transit. Yay for a vicious circle.

[i-215]

I wish the morons in Washington (and most State Capitols) would just index fuel taxes to inflation. The problem would've solved itself.

Instead, we'll end up seeing Chinese investors funding for-profit toll roads .... America's transportation of the 21st Century!

[FoUTASportscaster]

Originally Posted by LMich

It's as politically unpalatable at the state level as it is at the natonal level. As shown above, Americans think they pay "too much" as it is. It's almost a political third rail.

I question that. Polls consistently show a support or understanding that raising it is needed.

At virtually every local election that calls for raising taxes (special district, sales tax, property tax) to pay for road and/or improvements passes.

It is only politicians who consistently say that there are political backlashes for raising the gas tax.

[J. Will]

3. Gas taxes are unnecessary because the transportation system is paid for in other ways. Not so fast.

This one is especially funny. Just yesterday it was announced that the long-crumbling Brooklyn-Queens Expressway and Gowanus Expressway in Brooklyn, NY won't be rebuilt because there just isn't the money for it. Gov. Christie of NJ has also refused to raise gas taxes in his State. He would rather cut important tranportation projects than make people pay a few more cents per gallon at the pump.

[J. Will]

Originally Posted by ardecila

I wonder why states have not stepped into the breach and raised the gas tax themselves. Many cities have formed toll road authorities, but those only pay for a limited set of improvements to the freeway system. In reality the entire system of local roads and transit systems needs serious investment as well.

Because no one wants to take the political blame from short-sighted public and media.

[M II A II R II K]

How Americans Really React to High Gas Prices


Dec 01, 2011

By Eric Jaffe

Read More: http://www.theatlanticcities.com/com...as-prices/616/

Americans love to gripe about high gas prices, but they actually pay some of the lowest fuel costs in the world [PDF]. Part of the reason for this hidden discount is that lawmakers have refused to raise the federal gasoline tax since 1993. In fact the tax has lost value over time, since it's not even indexed to inflation; it sits at a flat 18.4 cents per gallon. That's to say nothing of the unaccounted social costs of traffic or the environmental costs of pollution. If gasoline were priced fairly in the United States, one has to wonder whether or not America's love for driving would remain so bold. That question is at the heart of a recent analysis conducted by Bradley Lane of the University of Texas at El Paso. Lane examined fluctuations in gas prices in 33 U.S. cities during a period stretching from January 2002 to March 2009. He then compared these changes to transit ridership patterns in the same cities over the same time. In all cities he looked at bus ridership, while in 21 places, including Los Angeles and Chicago and Washington, he considered rail travel as well.

- Lane's analysis revealed two key relationships between gas prices and transit ridership. The first is what he calls an elasticity, which is essentially a behavioral response to an event. In this case the event is a change in gas prices, and the repsonse is a shift in transit ridership. The second is what he calls a "lagged effect." That means that some elascities — such as switching your commute from car to train — don't appear until several months after the initial change in fuel cost. Take, for instance, the case of bus ridership in Atlanta. There Lane discovered three significant behavioral elasticities at three distinct temporal lags. The first, which occurred at 0 months (or roughly the same time as the fuel hike), saw a roughly 20 percent jump in bus ridership. The second, coming at 6 months, saw a 32 percent transit rise, and the third, at 11 months, a 12 percent spike. Over the course of about a year, then, one major rise in fuel cost in Atlanta led to about a 64 percent rise in bus ridership.

- "We typically associate high automobile use in the U.S. with Americans' need to drive and love to drive. But ultimately there's a pricing and policy structure that enforces that," says Lane. "If we fully costed out some of the impacts on driving and had any inhibitions on car use — not to the level of inhibitions on public transit now; I'd never wish that on anybody — but simply had some way to make automobile travel more difficult and more expensive, and gave an alternative in the form of public transit or denser neighborhoods or shorter multimodal trips, then you could really see a pretty large change."

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Here's the map for cumulative change in bus ridership in response to fluctuations in gas prices (the larger the circle, the greater the response to fuel costs):






And here's the map for shifts in rail transit: