Sunday, October 31, 2010

Possible gas tax reform

According to this Josh Barro post, there's a compromise under consideration in Washington that would extend the Bush tax cuts in exchange for a switch to an ad valoremgas tax. The misguided priorities and the deficit havoc of the Bush tax cuts are beyond the NS&S jurisdiction, but adoption of an ad valoremgas tax would be a step in the right direction.

Currently, the federal and state gas taxes are fixed: the federal tax is 18.4 cents-a-gallon. Meanwhile, gas prices have gone up.

Really, this change shouldn't be thought of as a tax increase - instead, think of it as canceling the annual gas tax cut. The federal gasoline tax hasn't been raised since 1993, when it was set at 18.4 cents per gallon. That means it has fallen by a third in real terms over that period - if the tax had kept pace with CPI, it would sit at 27.8 cents per gallon today.

In the meantime, "spending on road construction and maintenance grew almost exactly in line with the economy from 1994 to 2008 - a 102 percent increase." As a consequence, "[f]ederal, state and local governments grew road spending faster than road revenues by borrowing more and by diverting general tax revenues to spend on roads."

It's just math. Federal and state gas taxes are too low.

Read the whole post. Barro has some excellent analysis of the relationship between road and highway spending and related revenues.

Ultimately, though, simply stemming the backward march of gas-tax revenue is not enough. We need to make up lost ground. We need to account for the impact of increased fuel economy. And, we need to capture more of the costs of driving from those who drive (or consume goods that have been shipped). One of the virtues of switching to an ad valorem gas tax, though, is that it has no immediate impact, but preps for the future.

1 comment:

dr2chase said...

We've got an oil war to pay for, too, that should have been a $.70/gallon surcharge for most of the time we were in Iraq.