Federal Gas Tax Due To Expire: What Should Follow? – Part One

A NY Times article this week debated a highly contentious issue for the US domestic market the imminent expiry at the end of September of the 18.4 cents-a-gallon federal gas tax. Opinions range across the spectrum from staunch supporters to those that admit they don’t like paying any taxes but accept one or more of several justifications put forward for the tax continuing to those that are vehemently opposed. The latter include some who, out of principal, want to see all taxes rolled back, through those that believe road taxes should be raised via tolls on users, state taxes or vehicle taxes.

Arguments that are made for increasing haulage duties or tolls often point to a GAO study that found road damage from one 18-wheeler is equivalent to 9,600 cars. (There is about a 20 times difference in weight, but the wear and tear caused by the truck is exponentially greater). Such arguments are often put forward by car drivers who feel they are subsidizing the truck industry by meeting nine-tenths of the Highway Trust Fund via excise duty on fuel when a disproportionate amount of the wear, tear and damage is done by the trucking industry. This ignores the fact that the whole economy relies to some extent on moving goods from A to B, and a sudden and/or massive rise in heavy vehicle costs would surely hit the manufacturing and retail sectors hard at a time when the economy is struggling. As a generalization, a stronger economy benefits all.

For some, the argument goes that even an extension of the current tax is detrimental in the current climate, but as the article points out, using gas receipts on public investments (the Highway Trust Fund is there to repair highways, bridges and other forms of transportation) puts that money right back into the economy, creates jobs and improves efficiency once the cones have been removed and the roads re-opened, that is! Supporters claim that to stop the tax now would be criminal. The backlog of bridges needing repair is estimated at $72 billion alone and yet the gas tax has not increased since 1993 and adjusting for inflation is worth just 11 cents today. The Treasury Department is said to have topped up the $37 billion fund in recent years to ensure it breaks even, so supporters suggest the duty should, if anything, be increased.

Compared to other countries, the US gets off lightly with gas prices, largely because of the low tax regime. When state taxes are added in, Americans pay, on average, about 43 cents per gallon in taxes ” or about one-eighth the total price at the pump. But as the article points out, across Europe, drivers pay twice what Americans do at the pump ” and well over half of that is taxes. In Britain, the tax take is more than $4 a gallon, or 10 times what Americans pay.

US drivers may argue that they have greater distances to drive, the US is a large country and fuel costs have a disproportionately higher impact in such situations. But the flip side of that is the US is one of the most prosperous countries in the world with one of the highest standards of living. On the whole, its citizens can afford a “reasonable level of excise duty. Of course, the argument comes back to what is reasonable. Many would say the current level is already too low and low gas prices have contributed to wasteful consumption in any number of ways. Cities have sprawled into suburbs, eating up farmland for miles outside of the city solely because low gas taxes allow drivers to commute long distances to work or shop or play or go to school.

On average, city dwellers consume far less fuel per annum than suburban dwellers. Maybe Europe’s greater density of dwellings contributes to the population’s willingness to accept higher fuel taxation, and it would be too simplistic to label them all as socialists happy to pay tax through the nose. Another argument for higher fuel taxes is they encourage the move to more economical vehicles. It is not chance that lower fuel consuming cars have generally been developed in Europe and Japan. As a result, oil imports per capita are lower and oil is less of a burden on the countries’ import bills than would otherwise be the case.

What is our view, then?

Continued in Part Two.

–Stuart Burns

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