It has become increasingly evident that it is time to raise the federal gasoline tax. We have seen that a sudden and dramatic increase in gas prices has been painful, with the proceeds going to enormous oil company profits and oil export countries' coffers. The public has adapted by driving less, walking, biking and using transit more, reconsidering the types of automobiles we buy, and choosing to live closer to workplaces.
Unfortunately, when people tried to increase transit use, the systems were unprepared and could not meet the increased demands. Now that prices have come down, we wonder if the changes in choices will persist, or will the return of cheap gas allow us to revert to our old habits? Based on experience, when gas is cheap, we consume it in vast quantities and carry on consumptive habits as before.
It is beyond time to change our consumption choices. The opportunity presents itself to institute a gradual increase in the gas tax. The price volatility we have just experienced is problematic. No one could have planned or budgeted for these swings in fuel prices. A predictable schedule of gas tax increases would bring a better outcome.
Compared to other industrialized nations, this country has a very low gas tax. The federal gas tax is a paltry 18.4 cents per gallon for gasoline, and 24.4 cents per gallon for diesel. The average gas tax nationwide including state and federal gas taxes in 2006 was just 40 cents per gallon. For contrast, the gas tax then in Canada was $1.03, Japan $2.07, Italy $3.75, France $3.80, Germany $3.99, and Britain $4.24 (based on International Energy Agency data published by The New York Times in October 2006).
INVESTING IN PUBLIC TRANSIT
While we in the U.S. starve our trains and transit as a matter of federal policy, most of those countries have invested in their transit and train infrastructure, providing high quality and high-speed services. These countries also operate vehicle fleets with much better average fuel economy. We are decades behind.
Suppose that the gas tax is increased by 25 cents per gallon in 2009. At current prices, such an increase would still leave the price a bargain at around $2 per gallon, compared with the peak of more than $4 a gallon that we just experienced this past summer.
Suppose that the tax were to increase an additional 25 cents per gallon each year for the next eight years, until 2016 we would be paying $2 per gallon more. If that seems too much, how about just 10 cents per year for 10 years? Surely we can afford to pay $1 more per gallon 10 years from now.
With the economy in tatters, there is a consensus that major infrastructure investments are needed to stimulate the economy, targeted largely toward road and bridge rehabilitation projects. This unprecedented deficit spending, while necessary, is not sustainable over time. An increase in gas and diesel fuel tax will generate $18 billion per year for every dime, based on current consumption levels. (My calculations are based on 2007 revenue data from the Federal Treasury, published by the American Association of State Highway and Transportation Officials.)
That means, assuming a 25-cent-per-year increase for eight years, the revenues generated will amount to an increase of $45 billion in the first year, $1.62 trillion over the eight-year period and $360 billion per year thereafter. Or a lesser equation of a 10-cent increase per year for 10 years will yield increased revenue of $18 billion the first year, $990 billion over the 10-year period and $180 billion per year thereafter. Gasoline consumption will go down, so we won't really generate all of those dollars. If gasoline consumption were to decrease by 25 percent over the eight- to 10-year period, the revenue estimate would be adjusted downward. If we can reduce gas consumption by a quarter in just eight to 10 years, that is a huge victory in the campaign...
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