A tax whose time has come

Tom Schaller says federal gas tax increase is long overdue, and should be welcomed by liberals and conservatives alike

January 08, 2013|Thomas F. Schaller

As Washington politicians search for budget solutions, imagine if there were a magical revenue source that operated not unlike a national consumption tax that many conservatives prefer and would mitigate global warming to please liberals, all while helping repair America's infrastructure and strengthening our national security, to the delight of almost everyone.

Actually, such a tax already exists: It's called the federal gasoline tax, and it's been stuck at 18.4 cents per gallon for two decades. We're long overdue to increase it — maybe even double or triple it.

When Al Gore ran president in 2000, there was a lot of scaremongering about whether an environment-focused President Gore would push to raise federal gas taxes. PBS' Jim Lehrer even challenged Mr. Gore about his tie-breaking vote as vice president in 1993 for the Clinton administration budget package that raised gas taxes a mere 4.3 cents, to 18.4 cents per gallon.

The tax hasn't budged since. And because it's 18.4 cents per gallon (not 18.4 percent), as gas prices have risen the past 20 years, either steadily via inflation or drastically because of global market pressures, the share of the total, per-gallon retail price of gas that is taxed has shrunk. The inflation-adjusted gas price during the 1990s was roughly $1.75, but in 2012 it averaged $3.50; gas taxes as a share of every gallon today are half what they were in 1993.

Of course, instead of Mr. Gore we got oilman George W. Bush and an unnecessary war in Iraq that, for those with short memories, top Bush administration officials promised would be paid for by Iraqi oil reserves. (How'd that work out again?) Panic about a few extra pennies a gallon in taxes now seems silly, given that the pre-tax retail price of gas has more than doubled in just over a decade.

When gas prices rise, some people reduce their consumption; prices then fall, because that's how markets work. Still, Americans continue to consume at high rates, despite pre-tax price increases, because demand is relatively inelastic. Had we instituted a much-smaller price increase via an extra dime or quarter per gallon in taxes, the trillions of dollars in additional spending of the past two decades would have translated into hundreds of billions of dollars in Treasury receipts instead of turning into record corporate profits for oil companies.

Federal gas taxes presently yield an estimated $25 billion to $30 billion. Conservatively, somewhere between a quarter and a half trillion dollars in tax revenues have been foregone for the sake of imposing an extra dime per gallon in taxes over the past two decades. Bottom line? If Americans are paying nearly $4 per gallon for gas, we may as well be building new roads and bridges or reducing the national deficit here at home rather than enriching oil companies and undemocratic, oil-producing regimes halfway around the world.

But wouldn't higher gas taxes hit American consumers not only at the pump directly but indirectly through higher retail prices for most consumer goods? Yes, they would. After all, as my retired truck-driver father often quipped, "If you bought it, a truck brought it." (Including the truck and the gas itself.)

Although that maxim is slightly less applicable today due to online commerce — no truck brought the iTunes song you downloaded yesterday — companies would indeed pass along the added cost of higher gas taxes to consumers. But this economic reality is precisely why higher gas taxes act as a hidden consumption tax, the revenue solution preferred by so many conservatives.

And taxing consumption via gas taxes rather than a direct sales tax offers a variety of salutary side benefits. It would motivate businesses to find efficiencies or alternative ways to transport their goods. It would reward citizens who choose to walk, bike, use public transportation or drive more fuel-efficient vehicles for work or leisure driving.

Best of all, higher gas taxes would, all else equal, reduce total national petroleum consumption, thereby lowering the pre-tax price of gas as prices respond to shrinking demand and thus reducing our overall dependence on foreign oil — with all the national security benefits implied.

Twenty years is too long. It's time to raise the federal gas tax.

Thomas F. Schaller teaches political science at UMBC. His column appears every other Wednesday. His email is schaller67@gmail.com. Twitter: @schaller67.

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