By Steve Lafleur, December 19, 2014
TAKING ITS TOLL-Driving just got a lot cheaper in America. The timing is great not only for American consumers, but also for America’s infrastructure. The Highway Trust Fund simply can’t keep up current spending levels without more revenue. Significant declines in pump prices have presented an excellent opportunity to raise the federal gas tax, while keeping pump prices lower than initially anticipated.
Though a gas tax hike may not be the ideal approach, it is infinitely preferable to bailing out the Trust Fund with general revenue, or to putting the brakes on much needed infrastructure spending. This is a rare opportunity to improve America’s infrastructure without putting an additional burden on American taxpayers. It would be a shame to miss it.
No one enjoys paying taxes, though they are much easier to swallow when the revenue produces visible results. Since the gas tax is deposited into the Highway Trust Fund, it is somewhat like a user fee, albeit, an imperfect one. From the standpoint of fairness, it makes sense that drivers should pay for using the roads. Aside from fairness, the virtue of the 'user pays' principle is that it helps to ration roadway use. If movie theatres were paid for through tax revenue and tickets were free at the point of consumption, everyone would be stuck waiting in line.
The same principle generally applies to roadways, although tolls have a more direct impact on traffic congestion than gas taxes. There is some legitimate debate over the optimal mix of revenue tools to fund roads, but if it comes down to raising the gas tax or using general government revenue, raising the gas tax is the obvious choice.
Congress has allowed the Highway Trust Fund to gradually lurch towards insolvency. Expenditures have risen while gas tax rates haven’t. America’s aging infrastructure is in desperate need of repair, so holding out for the ideal solution no longer seems tenable. The Congressional Budget Office estimates that spending is poised to exceed revenue by $167 billion over the 2015-2024 period. The Trust Fund has already received $54 billion in transfers from the treasury since 2008.
One of the proposed solutions to the shortfall is to restore the Highway Trust Fund's original mandate: use gas taxes exclusively to pay for highways. In other words, get rid of what's known as the Transit Account. That would go some way towards alleviating pressure on the Trust Fund, but it still wouldn’t bring the fund into balance. Regardless of whether or not the Trust Fund continues to pay for mass transit expansions, Congress will need to find more revenue.
There has never been a better time to increase the gas tax. Consumers and firms have budgeted for much higher gas prices than they’re paying at the pumps. The bi-partisan proposal to increase the gas tax by 12 cents per gallon would leave gas prices below $3 per gallon, which is still a substantial overall decline. Indexing the gas tax to inflation would help to ensure that the Trust Fund doesn’t end up in this bind every few years.
Given the state of the American economy, now is a particularly bad time to defer highway construction and maintenance. Public spending can’t be expected to fix all that ails it, but this is a good time to support the construction industry.
While 30 cents per gallon might seem high, American drivers would still pay among the lowest gas taxes on earth, and less than Canadians pay. That America has managed thus far to maintain an enviable national highway system for a fraction of Canadian federal fuel taxes is a testament to the efficiency of the Highway Trust Fund model.
Given the enormous windfall that drivers will receive from lower gas prices, clawing back some of it to ensure that American still have roads fit for driving is a reasonable proposition. Just because the federal government owns the national highway system doesn’t mean that it's free. Someone has to pay to maintain the system. Drivers should be first in line to do so.