This is prime time to increase the federal gasoline tax
In early 2018, as part of his national infrastructure revitalization plan, President Trump suggested raising the federal gasoline tax from 18.4 cents to 43 cents per gallon, a 133 percent increase. At the time, the U.S. average cost for a gallon of gasoline was $2.63 and the notion of hiking the price another 25 cents was not warmly received.
Today, the national average is $1.80 and in some locations gasoline prices are under $1.20 per gallon. Unfortunately, with most states in lockdown mode because of the coronavirus, no one’s buying gasoline. Consequently, revenues dedicated to the federal Highway Trust Fund have shrunk dramatically in recent months. State excise taxes from gasoline sales also have plummeted.
Revenues for the highway fund also have languished because the tax, last increased in 1993, is not indexed to inflation — which has increased 77 percent since then. Improved fuel economy, coupled with the growth of electric and hybrid vehicles, has also starved the fund of revenues. These trends don’t augur well for fixing America’s roads and bridges, currently in a sad state of repair.
The $2 trillion stimulus package enacted last month included billions for public transit systems, airports and Amtrak, but earmarked nothing for highway infrastructure. As a result, many states are putting construction projects on hold. For example, the North Carolina Department of Transportation has trimmed $2 billion of projects from its fiscal year that starts on July 1.
Not surprisingly, state transportation agencies, anticipating a second federal stimulus program, are asking for $50 billion to be dedicated to road and bridge projects. They point out that 30 states have hiked their own gasoline excise taxes and road tolls in recent years, but that these increases are not producing significant revenues with the national economy virtually shut down and commuters, shoppers and vacationers parking their vehicles.
No one likes higher taxes of any sort, and politicians don’t get elected or re-elected by advocating for them. But if there ever were an ideal time to increase the federal gasoline tax, it’s now — while prices are low and likely to remain so for an extended period. Based on last year’s volume, a hike of 25 cents per gallon would generate about $36 billion of new revenue for the Highway Trust Fund. And the price of a gallon of gasoline would still remain well below its average cost over the past 10 years.
Indeed, Washington should hike the federal gasoline tax regardless of whether specific earmarks for highways and bridges are included in a second stimulus program. Assuming the new revenues were fully rebated to the states, road construction and repair spending would jump dramatically, creating tens of thousands of jobs that can help the nation’s economic recovery from COVID-19.
At the same time, drivers of electric vehicles (EVs) should start paying their fair share of road taxes. EV owners received federal tax credits of up to $7,500 for more than a decade, and because they don’t pay federal or state excise taxes on gasoline purchases they’re getting a “free ride” on America’s highways. This inequity flies in the face of the rationale behind user fees — that consumers of an amenity — in this case roads and bridges — should pay for the services rendered.
Today, EVs account for only 2 percent of U.S. car sales; however by 2040 they’re projected to grow to 57 percent. If a mechanism is not adopted that requires EV owners to pay into the federal and state highway funds, spending for road and bridge construction and repair will be further constrained. A number of potential solutions have been proposed, including higher registration fees for electric vehicles, interstate tolling and mileage-based road fees that could be applied to EVs and gasoline-powered vehicles.
According to the American Society of Civil Engineers, more than two out of every five miles of America’s urban interstates are congested and traffic delays are costing the country $160 billion in wasted time and fuel each year. One out of every five miles of highway pavement is in poor condition, and America’s roads have a significant and increasing backlog of rehabilitation needs.
The inflation-adjusted cost of gasoline today is about where it was 50 years ago. Let’s not squander this unique opportunity to hike the federal gasoline tax, replenish the Highway Trust Fund, and rebuild America’s critical road and bridge infrastructure.
Bernard L. Weinstein is associate director of the Maguire Energy Institute and adjunct professor of business economics in the Cox School of Business at Southern Methodist University.