Gas taxes and the highway trust fund bailout

Yesterday, America’s fearless legislators in the House of Representatives voted by an overwhelming, veto-proof margin of 387-37 to transfer $8 billion from the Federal government’s general fund into the trust fund used to maintain and expand the nation’s roads. The trust find has long operated with a surplus, so much so that ten years ago it seems the House transferred $8 billion from the highway fund to the general fund. (I tried hard to find an article covering the 1998 transfer, but it seems the NYT has neutered its search, making date selection impossible – great). Anyway, one has to wonder why no effort is being made to adjust the 1998 dollars to take into account ten years of inflation.

The next time you hear someone rant about the government’s stupidity in shoveling money into Amtrak, you might point out to them that it took the House hardly any time at all to suspend their rules and transfer over six years’ worth of Amtrak appropriations to the “user fee funded” highways. It’s outrageous how the highway lobby is able to conjure up the money they need with so little debate about other ways to provide mobility to the nation’s citizens and commerce.

Of course one cause of this highway fund “shortfall” is the asinine way in which the Federal gas tax is levied. Rather than be a proportion of the price of a gallon (the way in which we are taxed on income, sales, property, and nearly everything else in America), the gas tax is a fixed amount. So in the past few years, while gas prices have soared, the funds headed into the trust fund have not ramped up dramatically, but have rather tracked the actual consumption of gas. Surely the purpose of a gas tax is to raise money to deal with the effects of gas consumption. Instead of windfalls amounts of monies pouring into the highway trust fund, reduced consumption has limited the taxes collected, leading to correct but backwards headlines like this, in the WSJ:
Gas Conservation Threatens Road Funding. No wonder the Federal government does not see conservation as helpful when they see it as a threat to their income.

If one uses the Department of Energy data, found here, to look at American motor gasoline consumption by the transportation sector, one sees the following growth (please click for a larger view, and note that I have overlaid a moving 12-month average over the data):

The web offers a range of values for the number of gallons of gas in a barrel of oil – from 19 to 28 – but the figure I found over and over is 19.5. Converting the last twelve months’ data, ending in April 2008, one then determines that the year the United States consumed approximately 2,114.4 million gallons of gasoline. If one collected tax on all of that, which I assume we do but I have not verified, then at the current rate of 18.4 cents/gallon (ignoring for the moment that some of this is diesel which is taxed at 24.3 cents/gallon), the total is $389 million. The 18.4 cents/gallon figure has been in effect since October 1993, according to the Tax Foundation. Moving from there, one also notes that the average October 1993 cost of a gallon of gas was $1.092. Thus when enacted, the gas tax was 16.8% of the retail price of gas. Now that the average gallon of gas is, according to the same report, $4.118, a 16.8% tax would be 69.2 cents/gallon. If we raised money on that higher figure, the annual revenues from the gas tax would be $1,463.1 million (using the same assumptions as earlier).

Think of the work we could do on the country’s infrastructure if we were collecting over a billion dollars more per year from user fees. Think of the jobs from the work associated with that additional expenditure. Think how much more incentive there would be to conserve if the cost of a gallon was 41 more cents due to Federal tax. Instead, by levying a flat tax on gas, the United States has permitted the last 15 years to pass in a daze, leaving money on the table and ignoring a critical policy tool that could have helped shape this country’s debate over transportation and energy use. Presidents, senators, and congressmen of both parties should be ashamed of their cowardice on this issue – hiding behind out of date policies to avoid the uneducated outrage of the voters while the country headed straight for its current energy cost woes. When will we ever learn?


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