Solutions to Fixing the Gas Tax Crisis

The Wall Street Journal published a 10-page energy section with the declining gas tax problem on page 1. Five solutions are offered: taxing the miles, taxing the roads, indexing the gas tax, taxing the oil, and taxing the cars. Each has challenges.

2 minute read

September 18, 2012, 2:00 PM PDT

By Irvin Dawid

Michael Totty, news editor for The Journal Report in San Francisco, explains the problem as two-fold: "First, the tax has failed to keep up with the rising cost of highway construction and repair. And second, improved fuel economy and the rise of hybrid and electric vehicles means that more driving won't be matched by higher gasoline sales."

"[W]e do not have a sustainable way of paying for our transportation system", explains Pete K. Rahn, leader of the national transportation practice at HNTB Corp. "Looking ahead, the Congressional Budget Office predicts gas-tax revenue will fall by a cumulative $57 billion over the next 11 years thanks to a scheduled increase in federal fuel-economy standards."

"The idea that gets the broadest support is to take the user-fee piece of the gas tax to its logical conclusion: tax motorists on the miles they drive. Many economists argue that such a tax-known as a vehicle-miles-traveled tax or mileage-based user fee-is the fairest, most sustainable replacement for the gasoline tax. The problem is how to track the miles." And then there is the cost of collecting the fee.

"Mileage-based fees can also be adjusted to discourage motorists from driving on the most congested roads or at the busiest times of day. Mileage-based fees "let us kill two birds with one stone," says Randal O'Toole, a senior fellow at the Cato Institute, a libertarian think tank. "Short of privatization, it really is the free-market solution."

Less radical would be to adjust the gas tax to inflation, either by changing from an excise (per-gallon) gas tax to a sales tax or adjusting the tax to the Consumer Price Index, or an index of construction costs.

"Florida currently indexes a portion of its gasoline tax to the CPI; in 2011 the indexed portion accounted for 19.5 cents of the state fuel tax of 23.5 cents a gallon."

Totty does not report on the two federal commissions charged with addressing the gas tax problem he writes about, nor does he shed much light on how the gas tax crisis is recent in making due to the failure of Presidents Bush and Obama to raise it. The gas tax timeline depiction in the article points to gas tax increases in the Clinton, George H.W. Bush and Reagan administrations. In fact, there was enough gas tax revenue to dedicate some to reducing the national deficit, a flow that was reversed in 2010 with $14.7 billion of general revenue propping up the Highway Trust Fund.

Thanks to Jonathan Nettler

Monday, September 17, 2012 in The Wall Street Journal

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