Amid positive news regarding the U.S. economy, much focus is on the drop in the cost of gasoline. With retail price declines averaging about $1 per gallon, American households and businesses suddenly find themselves with more disposable income, creating a real boost to a suddenly surging economy.
The falling prices also renewed calls to raise the federal tax on gasoline. With a well-known backlog of repairs for our nation’s transportation infrastructure, coupled with everyone saving money at the pump, what better time than now to hike the user fee? That certainly makes sense as a political calculus, but there’s also a long-term economic incentive.
Unfortunately, that unexpected windfall has done nothing to rebuild and renew our transportation infrastructure. Flatlining driving levels plus more fuel-efficient vehicles have meant falling gas tax revenues. Meanwhile, the federal gas tax has not been raised since 1993, even to keep pace with inflation. The result is a federal transportation program that’s needed $54 billion in general fund bailouts since 2008 just to maintain solvency.
That’s what makes this moment such a great economic opportunity. Gas prices will invariably rise again, but if we bankroll today’s savings by making much-needed investments in infrastructure, the benefits can last for a generation.
Think of raising the gas tax today as if you got a raise at work. Sure, you could spend all of that newfound money on going out to eat or a summer vacation. But the more prudent financial strategy is to save at least some of that newfound money for investment in the future. That’s exactly what a gas tax increase now promises.
That is the reason political and economic leaders of all stripes—from Senator Jim Inhofe (R-Okla.) to Larry Summers, to former Pennsylvania Governor Ed Rendell (D) -- support infrastructure investment: it delivers wide-ranging benefits to our economy. According to the Congressional Budget Office, the return on investment in infrastructure from the 2009 stimulus is up to 2.2 times the amount invested, one of the best short-run returns on public dollars. This is partly because of higher employment in well-paying jobs but also due to the long-term benefits of enhancing and expanding economic connectivity within our communities.
In other words, as we discuss the merits of raising the gas tax, Congress should also take the time to address how those public dollars would be spent.
First and foremost, we need to repair and reinvest in the existing transportation system—bridges, roads, and transit systems—that has been neglected for decades. Second is to refocus on national priorities like the movement of freight. The U.S. is one of the only industrialized countries on the planet without a national freight policy. Third is to make upgrade the entire network with the latest sensor and communications technologies to relieve congestion, provide traveler information, and enhance public safety.
Even though raising the gas tax has to be done now, it is an imperfect funding source in the future. All vehicles are expected to continue to improve their fuel efficiency. Plus, the gas tax doesn’t discriminate where and when drivers use roadways, limiting our ability to adequately price our transportation network based on demand. That means Congress will need to continue investigating mileage-based charging, a position shared by Chairman Bill Shuster (R-Pa.) of the House Transportation and Infrastructure Committee. Such a fee would then allow us to transition the gas tax to a carbon charge, which economists like Michael Greenstone believe is a better way to capture petroleum’s negative externalities.
But for today, a gas tax hike delivers what this country needs: a well-timed tap on consumers’ disposable income in exchange for long-run economic benefits. Let’s not let this opportunity go to waste.
Tomer is a senior research associate and associate fellow at the Brookings Institution Metropolitan Policy Program. Puentes is a senior fellow and director of Metropolitan Infrastructure Initiative at Brookings.