An Unhappy Anniversary for the Gas Tax

The gas tax hasn't been raised in 20 years, and it's hurting the economy.

Filling up the gas pump
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Last week, as Congress was melting down over funding the government, an unfortunate anniversary came and went, marking 20 years since Congress last took serious steps towards funding our transportation infrastructure. As of October 1st, it's been exactly 20 years since the federal gas tax was last raised.

Drivers dealing with high gas prices might be grateful that the federal tax hasn't added to the price spikes we've seen in recent years, but they shouldn't be. The gas tax is the biggest source of funding for transportation in this country and when the tax stays flat but costs go up, something has to give.

Today, traffic congestion costs the U.S. economy more than $100 billion per year. Five billion hours and three billion gallons of fuel are wasted each year by drivers stuck in traffic. At the same time, thousands of bridges nearing the end of their intended lifespans have been allowed to fall into disrepair, and one-third of all major roadways are in poor or mediocre condition. This is the price we pay for having a low gas tax.

[See a collection of political cartoons on the economy.]

A puzzling response to this problem has dominated recent transportation debates, and it goes like this. The problems we're experiencing aren't just the result of Congressional inaction. Rather, the gas tax is somehow fundamentally broken. Its main flaw, according to this reasoning, is that it lets owners of hybrid and alternative fuel vehicles avoid paying their fair share in gas taxes because they don't buy as much gasoline as conventional car drivers. And with fuel-efficiency on the way up, the gas tax is doomed anyway, so why bother raising or reforming it.

The reality, however, is that improvements in vehicle fuel economy aren't even close to being the biggest cause of our gas tax revenue shortfall. My organization recently found that just 22 percent of today's shortfall is a result of these improvements. The other 78 percent is due to inflation – an issue that could be addressed with relatively minor reforms. The price the average driver would pay for an updated gas tax would be an additional $4.66 a month.

In most years, the cost of asphalt, concrete, machinery and other construction inputs rises in much the same way as prices at the local grocery or department store. Since 1993, infrastructure costs have grown by 63 percent while the prices faced by ordinary consumers have grown at a very similar 59 percent. The 18.4 cent federal gas tax, however, hasn't changed at all over that period. So we've been pilfering from our already tight general fund and passing the buck to states to make up the $215 billion we've lost to Congressional unwillingness to raise the tax.

[See a collection of political cartoons on energy policy.]

Reforming the gas tax so it can keep up with these costs is neither complicated nor unprecedented. In designing the federal income tax, Congress wisely planned ahead by allowing most fixed-dollar amounts written into the law to grow each year in step with inflation. That's why if you look closely at your income tax returns, you'll notice that many of your basic tax exemptions, deductions, and credits were larger this year than they were the year before.

If Congress had done the same with the gas tax – that is, allowed the rate to adjust itself to keep up with inflation – over three-quarters of the transportation funding predicament we're in today wouldn't exist. And a predicament it is. In the last five years, for example, we borrowed $53 billion from the general fund to patch transportation funding. That's $53 billion that would have gone to education, veterans' benefits or paying down the debt.

Recent reforms in Maryland and Virginia show Congress what to do. In fact, a total of seventeen states now automatically adjust their gas tax rates each year to keep pace with some measure of inflation. Altogether, a majority of the country's population actually lives in a state with this more sustainable kind of gas tax.