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Public Works Financing

Why There Won't Be a Big Gas Tax Increase

Best solution is to narrow the federal role, remove obstacles to tolling, public-private partnerships

Robert Poole
June 1, 2008

I'm going to stick my neck out and offer a bold prediction. Despite all the calls from the transportation and business communities for a large increase in the federal gas tax as part of the 2009 reauthorization, we aren't going to see that. Yet contrary to all the talk about massive infrastructure funding shortfalls and the imminent "bankruptcy" of the federal Highway Trust Fund, the future of transportation infrastructure in this country looks bright.

The scale of the effort to set the stage for a major increase in gas taxes has been phenomenal over the past two years. The American Association of State Highway and Transportation Officials, the American Road & Transportation Builders' Association, the U.S. Chamber, and various other associations have all published major studies documenting the looming shortfall between what American should be spending to rebuild and expand our transportation infrastructure and what we'll be able to do if federal and state fuel tax rates stay at their current levels over the next several decades.

Then came the report of the Surface Transportation Policy & Revenue Commission, which called for a huge expansion in the scope of what could be paid for out of fuel taxes (Amtrak, new high-speed rail, new energy and environment programs, and greatly expanded transit, among other things), and called for a tripling of federal fuel taxes to pay for it all.

With the groundwork laid by these efforts, Rep. Jim Oberstar (D, MN), chairman of the House Transportation & Infrastructure Committee, has promised us a reauthorization bill that would expand the six-year program from SAFETEA-LU's $286 billion to nearly $500 billion. That would mean nearly doubling the current 18.4 cent federal gasoline tax.

Besides the transportation community's desire for increased infrastructure investment, a host of others have called for big increases in fuel taxes. Some economists and pundits argue for a 50-cent or $1.00 increase, as step toward "energy independence." Others want to deprive evil regimes (Venezuela, Saudi Arabia, Iran) of some of their windfall profits from high oil prices, arguing that much higher U.S. gas prices (thanks to a big tax) will reduce consumption and therefore the price of oil. And of course numerous environmental groups and others concerned about global warming want European-level gas taxes to force people out of their cars and onto mass transit.

Though every one of these factions is still calling for major gas-tax increases, they are simply following scripts written prior to the last six months' increase in oil and gasoline prices to unprecedented levels. But in the real world of practical politics, many of those actively campaigning for office are talking about reducing gas taxes, not increasing them (witness popular calls in the presidential race and in some statehouses for a summer suspension of gas taxes!).

A second straw in the wind is the recent defeat in Congress of the much-touted "cap-and-trade" measure, endorsed by both presidential candidates. When push came to shove, a large number of members of Congress (especially those running for re-election this fall) realized that any meaningful cap-and-trade or carbon tax bill will lead to a significant increase in gas prices, on top of what the petroleum market has already produced. And that was considered politically fatal.

Moreover, today's higher gas prices are already having many of the effects that greens were wanting a higher gas tax to produce: reductions in vehicle miles traveled (and hence in gasoline consumption), and some large shifts in vehicle purchase decisions, away from light trucks (pickups, minivans, SUVs) and back to passenger cars.

Unless the pump price of gas falls back into the $3-3.50 range next year, I just can't see the political case for Congress enacting a large federal gas tax increase, regardless of who is in the White House or heading up the U.S. DOT. Consequently, a $500 billion reauthorization is a pipedream.

But that doesn't mean all is lost for improved infrastructure. How large a federal gas tax we "need" depends entirely on how the federal role is defined. What the Policy & Revenue Commission did to justify its call for a huge increase was to greatly expand the scope of what gas taxes could be spent on. By contrast, if that scope were to be reduced-by more sharply focusing on truly federal/national transportation needs-the current level of federal gas tax revenue would permit increased spending on those priorities.

For example, is subsidizing urban mass transit (let alone expanding it) truly something that motorists nationwide should be "user-taxed" to pay for? Isn't this really an issue for urban regions to address, tailoring their solutions to the specifics of their land-use and transportation preferences? Local-option sales taxes have been a powerful source of revenue for mass transit, in those states where they are used, and could easily replace current levels of federal transit assistance.

On the other hand, ensuring the flow of interstate commerce and international trade is clearly a federal function, memorialized in the Constitution, no less. If the federal program were refocused primarily on goods-movement, a lot more could be done to enhance and improve the Interstate system's key corridors and connectors to major ports and airports.

As for other highways and urban expressways, the best thing the feds could do is to remove all remaining barriers to congestion pricing and public-private partnerships. Nearly a dozen large metro areas are seriously considering entire networks of priced congestion-relief lanes that also offer a high-speed guideway for regionwide express bus service. Several hundred billion dollars in infrastructure investment funds is ready and waiting for good projects to invest in; $200 billion in private equity could be leveraged with various forms of debt to produce over a trillion dollars in net new investment for such projects. That would leave plenty available for other limited-access projects, such as rebuilding and widening much of the Interstate system.

In short, we're unlikely to see a big federal gas-tax increase next year. What we need instead, in the 2009 reauthorization, is a fundamental rethink and narrowing of the federal role, and the removal of all remaining barriers to tolling and public-private partnerships by the states. That way, states and urban regions will have the tools they need to close the very real infrastructure funding gap.

Robert Poole is director of transportation at Reason Foundation. An archive of Poole's work is available here and Reason's transportation research and commentary is here.


Robert Poole is Searle Freedom Trust Transportation Fellow and Director of Transportation Policy


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