Good Money After Bad

When gas prices are at record highs and American families are feeling the economic pinch, Congress may just decide to boost gas prices even higher. Their reason will be to save jobs.

As the Associated Press reported on July 20, “Now, lawmakers quietly are talking about raising fuel taxes by a dime from the current 18.4 cents a gallon on gasoline and 24.3 cents on diesel fuel.”

The discussion arose out of a presentation by Congressmen James Oberstar (D-Minn.) and Peter DeFazio (D-Ore.), who calculate that states will lose millions in funds and thousands of construction jobs should a gas tax holiday occur.

“The political vision of a summer gas tax holiday died a quick death in Congress, losing to a view that federal excise taxes on gasoline and diesel fuel will have to go up if they go anywhere,” writes Associated Press writer Jim Abrams for the Washington Post.

On July 23 the House passed the Highway Trust Fund Restoration Act, which would transfer $8 billion from the Treasury to the Highway Trust Fund (HTF). But this is seen as a temporary fix, as the HTF is expected to have a shortfall of several billion next year.

However, supporters of increasing funds to HTF may be overlooking the fact that the fund had a $10 billion surplus just three years ago.

The bill faces a veto threat from the White House and opposition from House Republicans Paul Ryan (Wisc.) and Jerry Lewis (CA), reports the Associated Press.

Some groups believe that gas tax increases are inevitable. Abrams identifies two groups pushing for the gas tax increase as the American Road & Transportation Builders Association (ARTBA) and the National Surface Transportation Policy and Revenue Study Commission (NSTPRSC). The ARTBA recommends increasing gas taxes by 10 cents a gallon, and the NSTPRSC has recommended more than doubling the federal excise tax from 18.4 cents to a full 40 cents.

The average American currently pays about 47 cents in total taxes per gallon, reports Abrams. This matches up with the most recent estimate calculated by the Tax Foundation. The federal excise tax has remained stable at 18.4 cents since 1993.

The proposed tax increases would purportedly save the HTF from financial crisis. But will taxing gas really save jobs? Skyrocketing gas prices already threaten the automobile and airline industries. “The auto industry was already reeling from its own problems when it was rocked again by gas costing $4 a gallon and more, and the state of Michigan’s fortunes are tied to the auto industry,” wrote AP reporter Devlin Barrett on July 17. Pushing excise taxes higher simply exacerbates this problem.

“The Transportation Construction Coalition, a group of industry companies and unions, said that if Congress does not do something about the [HTF] shortfall, states will lose about one-third of their road and bridge money in the budget year starting Oct. 1,” writes Abrams. “That would put 485,000 more jobs at risk.”

The HTF’s financial woes reach back to 2005 when Congress passed the Safe, Accountable, Flexible, Efficient Transportation Equity Act (SAFETEA-LU), which authorized new programs and a significant increase in expenditures. More specifically, it contained 5,000 dedicated spending provisions. (There were only 11 such spending provisions in the 1982 reauthorization act). At the time, the trust fund had $10 billion in excess funds. Now the HTF is in financial crisis because it experienced a 40% increase in expenditures between 1999 and 2003, and then allocated even more money in the years following.

The HTF also seems to have been the victim of earmarks, which the GAO labels “congressionally-directed spending.”

“Projects of National and Regional Significance was created as part of SAFETEA-LU to provide funding for high cost projects of national or regional importance that have total costs higher than $500 million or higher than 75 percent of the state’s annual federal highway funds,” writes the GAO. “Although it was established in law as a competitive program, the competition never took place because Congress directed all the funds to specific projects”

(NSTPRC, which argues for the larger tax increase, was also a product of the 2005 SAFETEA-LU Act).

In other words, Congress couldn’t keep itself from spending the funds on $500 million pet projects long enough to determine which ones were actually needed.

Efficiency isn’t exactly a core value within highway construction. “Most highway funds are distributed through formulas that have only an indirect relationship to needs and no relationship to performance or outcomes,” stated the GAO in March. They recommend pairing tax increases with a fundamental overhaul of HTF, as well as first determining a more focused definition for the federal role in transportation.

The GAO authors write,

“However, some of the demand for additional investment in transportation infrastructure could be reduced…our previous work has shown that current funding and decision-making processes provide a built-in preference for projects that build or maintain transportation infrastructure rather than try to use existing infrastructure more efficiently—which would reduce the overall demand for additional investments.”

Higher Gas Prices, Little Sense?

According to GAO research tracking funds between 1983 and 2000, each additional federal dollar causes the states to spend 50 cents less on their own highways. When narrowed to 1992 through 2000, this number jumped to a whopping 60 cents of revenue flight in response to a $1.00 increase in federal funds.

So if Congress raises federal gas taxes by 10 cents, it could result in only 4 cents more spent on the highways—but at a full 10 cents cost to the American taxpayers.

In March 2008, Senators James Inhofe (R-Oklah.) and Jim DeMint (R-SC) asked the GAO to determine what the actual cost increase would be per state should the HTF be devolved back to the states. As the chart demonstrates, 26 of the 50 states would pay less in gas taxes overall if they paid for their highways themselves. Another 14 would pay less than 10 cents more per gallon if they funded their own programs directly.

Keep in mind that this is while maintaining current expenditures—a level which currently exceeds HTF capacity and is causing a fiscal crisis. Under such a plan 41 of the 50 states could keep taxes lower than either NSTPRSC or the ARTBA suggests.

The breakdown also demonstrates the egregious interstate inequity perpetuated by the HTF. In order to maintain its current expenditures, the District of Columbia would have to tax an additional $1.42 per gallon and Alaska would need to tax another 49 cents per gallon. Currently, the other states pay these extra expenses.

But such a solution seems unlikely, as Congress overwhelmingly passed the Highway Trust Fund Restoration Act with 387 votes, garnering significant support from both political parties.

Bethany Stotts is a Staff Writer at Accuracy in Academia.

Bethany Stotts