A dramatic 40 percent drop in oil prices since June has prompted new discussion about raising the long-static federal gasoline tax and has many states considering gas tax hikes as well. At the federal level, Congress hasn’t increased the tax in more than 20 years, leaving it at 18.4 cents a gallon since 1993 — when gas cost a mere $1 a gallon. Among states, gas taxes average about 23.5 cents a gallon. Washington state levies a gas tax of 37.5 cents per gallon. Should we be paying more? Misconceptions about the history and politics of gas taxes are clouding the debate.
1. The federal gas tax is intended to cut oil use and help the environment.
The potential environmental benefits of raising gas taxes have been cited by environmental advocates and economists alike. “If the tax on gasoline were higher, people would alter their behavior to drive less,” economist Greg Mankiw wrote. “They would be more likely to take public transportation, use car pools or live closer to work. The incentives they face when deciding how much to drive would more closely match the true social costs and benefits.”
But neither getting people to drive less nor reducing carbon emissions is a goal of the federal gas tax. Instead, Congress instituted the modern tax in the 1950s to help pay for construction of the interstate highway system; in essence it is a user tax on drivers. A majority of the revenue is still “dedicated” to this purpose, meaning it goes directly to the federal Highway Trust Fund, not the general treasury. On the four occasions since the ‘50s that Congress has increased the tax, it stipulated that the additional revenue go to either to the Highway Fund or toward deficit reduction. (A small amount — less than 3 cents a gallon — is directed to fund mass transit.)
The claims that higher taxes would have a positive impact on the environment or oil security are also questionable. Even if the federal gas tax went up by, say, 10 cents, it would remain a relatively small portion of the overall price of gas and would have far less influence on behavior than market-driven price fluctuations. And because studies show that more roads lead to more driving, oil consumption and exurban sprawl, any drop in consumption encouraged by higher taxes would be more than offset when new roads were built or old ones expanded.
2. Conservatives oppose raising the gas tax, and liberals support it.
Yes, conservatives are usually the ones to stand behind the pledge “no new taxes.” But the federal gas tax has been raised under three Republican administrations (Eisenhower, Reagan and George H.W. Bush) and only one Democratic (Clinton). Although the red states of the South do tend to have slightly lower gas taxes than most other states, there isn’t a clear red-state-blue-state divide. Liberal-leaning New Jersey boasts one of the country’s lowest gas taxes, at less than 11 cents a gallon. And Republican governors and legislators — in Michigan, Utah, South Carolina, South Dakota and elsewhere — are among the most vocal advocates right now for raising gas taxes in their states.
Conservatives tend to be more ideologically disposed to “consumption taxes,” such as a gas tax, rather than taxes on income or capital. That helps explain why Mankiw — chairman of the president’s Council of Economic Advisers under George W. Bush and an adviser to Mitt Romney in 2012 — and moderate conservatives such as Washington Post columnist Robert Samuelson have long supported increasing the gas tax. Other conservatives such as Doug Holtz-Eakin, an adviser to both Presidents Bush and to John McCain, favor a carbon tax, with revenue used to cut other taxes and reduce pollution.
As for liberals, many see the gas tax as “regressive,” hitting lower-income people hardest, and favor raising it only if the increase is explicitly offset by other reductions for lower- and middle-income taxpayers. That’s the deal Democrats struck when the gas tax was last increased, in 1993. Progressives also tend to prefer a carbon tax, instead of a gas tax, to discourage greenhouse gas emissions; a carbon pricing bill by liberal Sen. Maria Cantwell, D-Wash., and moderate Sen. Susan Collins (R-Maine) would recycle three-quarters of revenue directly back to consumers.
3. Raising gas taxes is political suicide.
“I think it’s too toxic and continues to be too toxic,” Steve LaTourette, a former Republican congressman and buddy of House Speaker John Boehner, told the Atlantic this month. “I see no political will to get this done.”
While this is accepted Washington wisdom, history doesn’t support the idea that voters will punish politicians for this tax increase. Dwight Eisenhower, Ronald Reagan and Bill Clinton all raised the federal gas tax in their first terms; each was reelected. Ross Perot made a 50-cent-a-gallon gas tax hike the centerpiece of his 1992 presidential campaign and won the highest third-party vote total in the past 100 years.
At the state level, governors of both parties have raised gas taxes recently without a clear pattern of voters turning them out. In New Hampshire, Democratic Gov. Maggie Hassan signed a gas tax increase into law in May and was reelected handily in November, even in a Republican “wave election.” Wyoming almost doubled its gas tax in 2013, a move advocated by GOP Gov. Matt Mead, who won reelection this year by a wide margin. The latest drop in gas prices, along with pressing road repairs, may be changing the political dynamic even in red states. The president of the South Carolina Chamber of Commerce recently announced that his group would support the first state gas tax increase in more than 25 years.
Opinion polls consistently show that the American public supports a small increase — 10 cents — in the federal tax to improve road maintenance (67 percent in one survey) or even to fund projects to reduce global warming (50 percent), but very low support (20 percent) if no purpose is specified.
4. Low gas taxes mean Americans spend less on gas than people in other countries.
Advocates of higher gas taxes like to point out that the United States has the lowest gasoline taxes (combined federal and state) of any industrialized country. Europe’s gas taxes are often 20 times higher, China’s are three times higher, and even developing countries have taxes far higher than in the United States. So Americans must spend less on gas, right? Not necessarily.
With less than 5 percent of the global population, the United States consumes well over 20 percent of the world’s oil, largely because it has many more cars per capita (about one per person) and Americans drive longer distances more frequently. U.S. total vehicle miles traveled in 2013 were just below 3 trillion, or about 9,000 miles per person, far higher than in any other country. Europeans also drive cars that are on average at least 30 percent more fuel-efficient than the cars Americans drive, offsetting lower prices at the pump in the United States.
5. Raising gas taxes now means consumers will be doubly penalized when gas prices go up again.
Actually, consumer spending on gas is likely to fall further in the future, because fuel-efficiency regulations will roughly double the mileage of new cars over the next decade. Americans buying the same model car 10 years from now will get much higher gas mileage, and so pay less each year for gas, even if taxes were raised significantly. This coming revolution in mileage is another reason politicians see opportunities to raise gas taxes. A few years ago, a bipartisan group of former senators proposed broad-based tax reform largely financed by a gradual $1 increase in the gas tax. Their reasoning was simple: Consumers would not feel the difference. “Instituted along with a federally mandated increase in CAFE (corporate average fuel economy) standards,” they said, “any increase in the cost of gasoline at the pump could be offset by better fuel efficiency.”
Paul Bledsoe is a senior fellow on energy and society at the German Marshall Fund and president of Bledsoe &Associates, a policy consultancy. He was a staff member at the Senate Finance Committee and the Clinton White House.
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