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How To Pay For Infrastructure: Raise The Gas Tax By One Dollar

David Herzig ,  

 CONTRIBUTOR

I am a professor of law writing on tax, charities and estate planning.  

• President Trump was wrong when he proposed to raise the gasoline tax by a quarter; it should be raised by a dollar.
• We seemed to be left with a gasoline tax that is currently wholly inefficient, politically untenable, and regressive

In this photo taken Monday, Oct. 30, 2017, gasoline prices are displayed at a Chevron station in Sacramento, Calif. Gasoline taxes will rise by 12 cents per gallon Wednesday, Nov., 1, to raise money for fixing roads and highways. It is the first of several tax and fee hikes that will take effect after they were approved by the Legislature earlier this year. (AP Photo/Rich Pedroncelli)

During “infrastructure week,” President Trump’s proposed to raise the gasoline and diesel tax (the “gasoline tax”) by a quarter to pay for infrastructure spending.  There has been a tremendous backlash against this proposal, after all, no one seems to like more taxes.  The chorus of naysayers is right that President Trump was wrong when he proposed to raise the gasoline tax by a quarter; it should be raised by a dollar.  The real question is not if the gasoline tax should be raised but by how much.

As any driver who has avoided potholes on a consistent basis can attest, once the infrastructure is built, it needs constant attention. U.S. infrastructure is so bad that it was given a D+ in the American Society of Civil Engineers recent 2017 report.  According to the World Economic Forum’s Global Competitiveness Report, over the last decade, the U.S. has dropped from 7th to 23rd in quality of infrastructure, falling behind France, Germany, Canada and Spain.

The Highway Trust Fund is the mechanism which the government pays for infrastructure including, highways, transit and alternative transportation. The gasoline tax is the source of revenue for the Highway Trust Fund at its current level of 18.4 cents per gallon.  But, the Highway Trust Fund is significantly underfunded since the last increase of 4.3 cents in 1997.  This freeze of the tax amount has resulted in a funding gap.  The Congressional Budget Office (“CBO”) has conducted numerous studies and estimates that $50 billion is needed for annual highway improvements with a current maintenance funding gap of $14 billion.

Without taking into account current needs or future growth, merely returning the tax to its purchasing power as over 20 years ago (when they were last increased) would require rate increase of 12.6 cents per gallon.  To meet current spending levels the tax would need to be 31.6 cents per gallon and to maintain existing conditions and performance the tax would need to be 46.6 cents per gallon.  The upward amount the tax could be raisedwithout affecting supply or demand is $1.00.

The Highway Trust Fund is below current requirements, because (a) the tax rate is not keeping pace with inflation, (b) needs outstrip revenue, and (c) fuel-efficient vehicles consume less gasoline.  The problem with the gasoline tax is in the design.  The tax, at the federal level, is a fixed amount (not a percentage of the sale) per gallon.  If the price of oil rises or falls, the tax will not change.  It is solely dependent on the number of gallons sold.  If there are fewer gallons sold because of the increased fuel efficiency or if there is equal consumption but greater use of the infrastructure, e.g., more miles driven on the same number of gallons, there will be budgetary shortfalls.   Because the gasoline tax is not indexed, the problem is magnified because rates remain fixed over time, while the cost of constructing and maintaining a transportation.