But wait. The taxes we levy on that fuel are the lowest in the developed world, making our gas prices the lowest in the developed world. Rolling back a portion of the federal gas tax would only lower prices at the pump by a mere 2 to 3 percent. And it would severely crimp state highway spending programs that are being bankrolled by selling bonds that are based on receipt of future federal payments.
Now that gas prices are stabilizing--OPEC loosened up its production quotas--we should reflect on how to address future revenue needs and where the gas tax fits in the fiscal mix.
We travel everywhere by automobile, and we ship almost all goods by truck. That means there is a gigantic revenue base for the gas tax. A few pennies' increase in the rate can raise lots of money, and the side effects of higher gas taxes, on balance, are beneficial. Working through market forces and consumer choice, the gas tax promotes efficiency in transportation and energy technology. Besides, experts say gas taxes are about half the level they should be to reflect costs.
A substantial gas-tax hike would not suddenly shift consumption to alternative travel modes or other fuels overnight. But there is price elasticity, and over time, higher costs would make seeking transportation and fuel alternatives more attractive. Europeans (whose gas taxes are far in excess of ours) have seen the gas mileage of their autos climb while ours have declined.
Added benefits are that a gas tax is efficient to collect and can reduce reliance on other taxes that are used to fund transportation- related costs. Technically, gas taxes are the cheapest tax to administer because they are collected from distributors, and there are relatively few collection points. Evasion is difficult because the commodity is of low value compared to its bulk. And gas can't be delivered by downloading over a tax-free Internet. With distribution back to those urban areas of gasoline consumption (a decent proxy for need), a gas tax hike could take pressure off the property tax or local sales taxes, which routinely pick up transportation-related costs.
Arguments against raising the fuel tax are trotted out whenever the subject comes up. Poor Joe and Jill Six-pack use the family sedan to drive miles to a job and can't afford to live closer to their low- paying jobs. And, fiddling with the gas tax is an attempt to skew personal decision making in the name of higher density living and a reduction of sprawl.
But the most compelling objection (besides the nihilist view that no tax should be raised ever) is that a gas tax is an assault on the mystical union between Americans and their automobiles. Americans put a great premium on personal mobility and low-cost fuel is the principal way of accommodating that. So be it. That might be an argument against using the gas tax as a means of raising general revenues (as Europeans do), but do we really want to enshrine subsidizing the use of the automobile? While preserving freedom of choice, why not have a revenue system that better reflects the cost of our transportation system?
Talking about doing anything to taxes other than cutting them is politically incorrect. Nothing will happen until real pain is felt. That pain will probably not occur at the federal level for many years, but it may well be felt sooner at the state and local government level.
Individual states should have their game plan in order for the next time general revenues go into reverse. Although the gas tax increase makes a lot of sense at the national level, there is no reason why individual states can't get smart and do it together regionally. The federal government is leaving lots of headroom on the fuel tax. With the average price of fuel internationally running $3 to $5 a gallon, the average state gas tax could probably be doubled from 20 cent to 40 cents a gallon (worth about $25 to $30 billion added revenues nationally) without damaging the economy. If you don't believe that, just wait to see how non-injurious the latest gas price hike (which will mean an added $75 to $100 billion going not to tax revenues but mostly out of the country) proves to be for this year's growth. In the new economy, fuel prices are just a lot less important than they used to be.
The issue may come along sooner than expected. The surging growth of a tax-free Internet has set the teeth of many states and localities on edge. To satisfy revenue needs in the face of the newcomer's political clout, the old icon of low energy taxes may be placed on the altar. Thus, we may come to appreciate the far-sightedness (albeit, unintentional) of past politicians who preserved for us an ideal tax with which to finance our latest romance, the tax-free Internet.
