May 4, 2008

Gas Tax Holiday Madness.

Posted at 4:50 PM by Stephen Jackson

A federal gas tax holiday is a short-sighted policy proposal. The costs are huge and the benefits are small.

The Federal Highway Trust Fund is in bad enough shape right now without starving it of much-needed summer gas tax revenue. On current trends, the federal fund will slide into the negative in the very near future. Cutting off the revenue spigot will make that happen faster. What then? Here are a couple of options:

Option 1: The 18.5 cent federal gas tax will have to be increased, a lot, in the near future or new federal revenue sources found. Because of construction inflation, the increase in average fuel efficiency of cars and trucks and a continued exponential increase in miles being driven on our roads, the crisis of flattening revenue streams and a significant spike in transportation budget demands is here right now. Estimates vary, but if the federal fund is to build and maintain as many roads and mass transit systems as it has in the past, the gas tax will have to double give or take a few cents in the next few years. And they want to suspend the gas tax?

Option 2: The feds may balk at raising the gas tax very much or at all. This means that little or no money will come to the states from the feds for roads and mass transit, unless the feds borrow or raid other parts of the budget. Federal money makes up a little under a quarter of the North Carolina state transportation budget. Think of the impact on jobs, our roads and our nascent mass transit systems if this money stopped coming from Washington. It would be a devastating blow to the state transport budget. The state would either have to increase our gas tax or the various fees and charges that go into the transportation budget – the sales tax on cars and trucks looks a likely suspect since every 1% raise yields an extra $200 M per year – or cut back on transportation expenditure. Think there are problems now? Just wait.

The gas tax holiday is a stick-your-policy-head-in-the-sand approach to increasing a candidate's voter appeal. There are serious problems facing our transportation budget and policy at both the state and federal level. The serious policy discussion is over how to meet budget demands. How can we get the revenue we need to repair, rebuild and maintain our transportation infrastructure? The discussion is whether we continue to rely on the gas tax. If so, how much do we increase it? What are the other revenue options?

The other part of the discussion is can we do something different with spending? In that context, how are we to ensure a fair and equitable access to mobility for all Americans in the coming decades? No-one who is serious about solving these problems is contemplating a gas tax holiday, not unless they are chasing votes in the short term.

Putting an extra few dollars in the wallet of drivers this summer (so they can buy more gas and drive up the price) is the only benefit of this policy. Myopic? Yes. Lowest common demoninator politics? Yes. Smacks of cynicism? Yes again. Surely the proponents of this irresponsible proposal know better.

In the medium term the gas tax holiday will, in all likelihood, force a gas tax increase in a policy-on-the-run response to the federal fund running dry. What an irony that would be.

There are further problems with the holiday. Who could say with confidence whether the gas tax cut is passed on by retailers to consumers in full?  Ever seen a receipt that separates out the gas tax from the fuel price? There may be a few retailers out there who do it, perhaps. Either way, what if the price of gas goes down 10 cents, on average, during the first week of the gas tax holiday? Does that mean gas prices have risen 8 cents? Or have retailers pocketed 8 cents of gas tax money? Or oil companies have raised prices to take advantage of the holiday? Or something in between? Who would know?

The federal gas tax holiday plays on the mistaken notion that somehow, taxes are responsible for the increase in gas prices in the last 18 months. They haven't. In fact, the federal gas tax is a flat rate and is therefore becoming lower on a percentage basis as fuel prices have risen. In fact, the US has the lowest gas tax rates in the OECD. Our gas is cheap compared to Europe.  And don't forget that oil company profits are at record levels.

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