Tax truth: We need to raise the levy on gasoline

Thursday, July 8, 2010

SUMMER DRIVING season is upon us. This year, the annual migration of vacationers coincides with rising concerns over the federal debt and a nasty oil spill in the Gulf of Mexico. What better time to revisit the enduring, maddening, illogical contrast between how little Americans actually pay to drive -- and how fiercely they resist even modest gasoline tax increases that would go a long way in addressing the nation's environmental and fiscal crises?

By any measure, driving in the United States is cheap. The price of a gallon of regular gasoline averaged about $2.70 during June. That's up almost a dollar since the depths of the Great Recession in December 2008. But the price has been steady for about a year, and adjusted for inflation it is 66 cents per gallon less than it was in 1980. Gas prices have had their ups (the $4-a-gallon spike in mid-2008) and downs (the consistently low prices of the late 1980s and 1990s). Overall, though, driving today is substantially cheaper, in real terms, than it was about a generation ago. In fact, it's cheaper than it was at the end of World War I. Government forecasts suggest prices may rise slightly over the next year.

Crude oil prices dictate more than half the price of gasoline, and the price of crude, in turn, fluctuates with broad global economic trends. So today's cheap gas probably reflects the depression of demand for oil due to the weak U.S. and European economies. But a significant factor keeping gas cheap is the erosion of gas taxes. The federal tax of 18.4 cents per gallon has not gone up since 1993 -- meanwhile losing a third of its value in real terms. State taxes are about 30 cents per gallon on average, but they, too, have barely risen lately. In real terms, Americans spend just $19 on gas taxes per 1,000 miles driven -- half of what they paid in 1975, according to a recent report in USA Today.

We're driving more miles but paying less for the privilege. Small wonder that alternative-fuel vehicles struggle in economic competition with the internal combustion engine. Or that transportation infrastructure is crumbling across the nation: The congressionally authorized National Surface Transportation Infrastructure Financing Commission reported last year that it would take a dime-a-gallon increase in the federal gas tax just to maintain current highway quality. Increasing the federal tax by 25 cents per gallon would raise $305 billion for highway construction and deficit reduction over the next decade, according to the Congressional Budget Office. And initially, at least, a gallon of regular would still cost less than three bucks. Any increase should probably be phased in so as not to remove abruptly what has turned into a de facto economic stimulus program. But drivers could offset the increase through minimal conservation. Motorists hate taxes, of course, and politicians regularly bow to their resistance. But the truth is that few measures would generate more public benefits in return for less sacrifice.

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