As I wrote here the other day, the fact that the 18.4 cent tax has been unchanged for over 20 years now is the main reason the Highway Trust Fund is going broke.
Over that period, two forces in particular have eroded its contribution to the trust fund: inflation, or more specifically the cost of the materials used to build and maintain roads, and the improved mileage of the fleet of cars and trucks on the road. A third factor is that people are actually driving less, though that’s double edged: it implies less gas consumption and lower gas tax revenues but it also means less wear-and-tear on the roads.
The first figure, from this excellent ITEP report, shows that the impact of both inflation and better mileage reduced the purchasing power of the federal gas tax by almost 30 percent through 2011 with the lion’s share of the fall due to inflation.
The second figure, a moving average of total miles driven, shows what I consider to be a pretty remarkable trend toward less driving. If you squint you can maybe see a bit of cyclical reaction in prior downturns, but nothing even close to both the decline in the Great Recession and the dramatic shift in trend since then. There’s nothing approaching that pattern in the figure with data back to the early 1990s.
It’s not an obvious gas price story. Retail gas spiked up to $4/gallon in the summer of 2008, but it reversed course after that and settled into a fairly tight range around $3.50 since early 2011. The flat trend in miles driven certainly could be a function of the lingering weak recovery, especially for middle-income families, but I frankly don’t think anyone has an explanation for this yet.
At any rate, it’s another reason why the Highway Trust Fund is in trouble, though as noted above, less driving means less stress on highways. On the other hand, the flat driving trend means there’s a greater need for mass transit, which constitutes around 15 percent of the fund’s outlays. Less revenue from the gas tax is thus a constraint in that area as well.
As is typical for the Fourth of July holiday weekend, gas prices are up across the nation right now, a nice little lesson in price movements given inelastic demand. According to GasBuddy.com, they’re lowest in South Carolina, at $3.37 and highest in Hawaii at $4.35; national average: $3.68, which is just about what I saw here in Alexandria, Va. this morning during my morning jog (as you see, I’m always doing research!). But here’s the good news: when you’re filling up this weekend, just think about how you’re helping to replenish the starving highway trust fund. If that doesn’t make you feel better, I can’t imagine what would.