Raise the Gas Tax – 50 Times
It's more sensible in Iowa.
A political development of actual importance is occurring in Iowa this month: Democrats and Republicans are proposing to increase the state’s gas tax. Not only is this a rational way to raise revenue to repair bridges and roads, it's also a sensible response to the federal government's abdication of the task.
A bill advancing through the Iowa legislature would add 10 cents to the state’s 22-cents-a-gallon gas tax. Members of both parties have good reason to support it: More than 1 in 4 of the state’s major roads are in poor condition, and an equal proportion of its bridges is structurally deficient or functionally obsolete. If the bill passes, Governor Terry Branstad, a Republican, has indicated that he will sign it.
Given the low price of oil, and the declining real value of the federal gas tax -- which has stood at 18.4 cents a gallon since 1993 -- it’s a good time for states to act. Road conditions in Iowa are, unfortunately, typical of the rest of the country.
In the long run, however, the strategy of using a gas tax to pay for transportation improvements is doomed. As vehicles become more fuel efficient, states may find a more suitable way to pay for transportation infrastructure -- and the closer it is to a user fee, the better: Oregon, for instance, is experimenting with a program that charges drivers by the mile.
A gas tax, especially as it declines in value, is an imperfect and unreliable proxy for a user fee. Congress has been proving this point nicely.
The federal Highway Trust Fund, which is financed through the federal gas tax, is scheduled to run out of money this spring. Simply increasing the gas tax would be the most sensible fix -- in addition to raising revenue, gas taxes create incentives for conservation, which reduces air pollution and carbon emissions. Instead, Congress has been resorting to a series of fiscal gimmicks to keep the fund afloat -- anything to avoid increasing the gas tax. The latest maneuver would patch the fund by connecting it to a plan to tax repatriated foreign profits.
The jig is up. The Highway Trust Fund has become little more than a chronically underfunded redistribution mechanism -- and a poorly designed one at that. States with the greatest needs (and often the highest gas taxes) tend to be shortchanged by the federal formulas, while states with lesser needs (and often lower gas taxes) benefit disproportionately.
Rather than applying another short-term patch to the fund, Congress should just abolish it and direct the gas tax revenue to the general treasury. Or it could abolish the tax altogether, turning the matter over to the states. (Republicans could claim a victory for federalism, Democrats for fairness.) Nothing would prevent Congress from continuing to support state spending on transportation based on need and national economic priorities.
States don’t need the federal government to redistribute their gas taxes. But they do need to start raising their own -- or finding other ways to increase their spending on transportation.
To contact the senior editor responsible for Bloomberg View’s editorials: David Shipley at email@example.com.