Is a Gas Tax Increase Actually Desirable?

Is a Gas Tax Increase Actually Desirable?

December 26, 2013  | ENO CENTER FOR TRANSPORTATION

New proposed legislation in the House has generated some excitement, at least in the media, about the possibility of a gas tax increase to fund transportation investment. Congressman Earl Blumenauer (D-OR) put forward legislation that would increase the gas tax by 15 cents and then index it to inflation. He also has a plan to transition away from the gas tax towards a mileage-based user fee.

Mr. Blumenauer’s proposal inevitably raises hopes among transportation stakeholders that a gas tax increase could actually become law. Although some members of Congress have indicated their support for a gas tax increase in the past – notably Senator Tom Carper (D-DE) – the prospect of actual legislation from a member of the House Ways and Means Committee is significant. It also comes on the heels of recent discussion by Senate Environment and Public Works (EPW) Committee Chair Barbara Boxer (D-CA) of a possible conversion to an ad valorem sales tax on gasoline that could track with inflation, recommendations by the Simpson-Bowles and Dominici-Rivlin deficit commissions for a gas tax increase, and an amendment submitted in the Senate Finance Committee markup last year by Senator Michael Enzi (R-WY) that would have indexed the gas tax to inflation (the amendment was withdrawn before a vote could be taken).

Transportation advocates tend to get excited about the prospect of an increase in the federal gas tax, and with good reason. Numerous reports over the last decade, including those by Eno and the Bipartisan Policy Center (BPC), two federal commissions, the American Society for Civil Engineers, and many others too countless to mention have all concluded that we are underinvesting in our transportation infrastructure nationally. Moreover, an Eno/BPC report from 2012 found that if federal investment were reduced by 35%, most states and localities would be unable to replace those lost funds. Without a gas tax increase, it is likely that our transportation infrastructure will continue to deteriorate.

But that is not the whole story. Underinvestment is not the only problem – we also need to make wiser investments with the funds we currently have available. While we have made some recent progress in this area, we have a long way to go. A gas tax increase, if it can become a reality, could potentially make this equally pressing issue of better investment decisions harder to address. Below are some likely outcomes in this regard that could be potential downsides to a gas tax increase:

  • Donor donee would re-emerge as a dominant issue.

The 2-year authorization bill (Moving Ahead for Progress in the 21st Century, or MAP-21) passed in 2012 was unique in a number of ways. But perhaps most significant was the fact that, unlike authorization bills of the decades prior, its development was not characterized by formula fights. During the development of the three 6-year bills that preceded MAP-21, funding formulas and the donor-donee issue were so dominant that they held up legislation for years at a time, and distracted from any substantive discussion about the purpose or goals of the federal program.

Donor-donee is essentially a fight over how much every state puts in compared to how much they get back. It was severely diminished by the introduction of substantially more general fund revenues to the Highway Trust Fund, beginning in 2008 and continuing through the present day. This made every state a so-called “donee” state meaning they were all getting more back than they paid in fuel taxes. In the absence of this fight, and without earmarks, Congress and Senate EPW did something quite unusual – they focused on policy reform. The result was a clear delineation of national goals and performance measures, better policy focus through consolidation of 100+ federal programs, and the potential for focusing more on investment and operational outcomes. However, there is much more work to done with respect to policy reform, in order to build on the successes of MAP-21. This is unlikely to happen if the gas tax is increased, because this will restore Congress to its more natural state of competing for new revenues.

  • Earmarks will likely return in some form.

The earmark ban, instituted by Congress in the wake of the Republican takeover of the House in 2010, was directly related to egregious earmarks enabled by the gas tax. The “Bridge to Nowhere” remains the most famous earmark of all time, and as an example of government waste and abuse it helped to bring down the Republican Congress in 2006. When the Republicans were partially restored to power in 2010, they sought to distance themselves from that past through the ban on earmarks. However, as we have seen with the recent Water Resources Reform and Development Act (WRRDA), even with supposed ban in place, when there is money available Congress finds a way to earmark funds for their pet projects. A gas tax increase would certainly increase the likelihood of the return of plentiful earmarks in the next surface transportation bill. If members are going to take the political risk of approving a gas tax increase, they will almost certainly desire accompanying political returns in the form of earmarks.

Admittedly, the return of earmarks is not necessarily a negative. Earmarks, even at their peak, accounted for a small percentage of surface transportation spending. They represented a symptom of a larger problem, which was the lack of a clear national purpose. Their return could easily improve the chances of passing a longer-term bill. However, at the same time they revert the focus towards local projects over investments that create national benefits. They could also serve to diminish transportation in the eyes of the public. If transportation bills continue to be seen primarily as vehicles for earmarks, we will have a challenging time convincing people that the government is being held accountable for how they spend taxpayer dollars. When MAP-21 passed, there was bipartisan agreement on the legislation and little to no negative reaction from the public. This is how it should be for transportation, and if we want to keep it this way, we likely need to keep earmarks to a minimum.

  • Modal divisions will be solidified.

One of the places MAP-21 fell short, with respect to reform, was that the legislation maintained the modal silos that characterize our transportation investment decisions. The vast majority of federal surface transportation programs dictate to grantees how funds should be spent with respect to mode, instead of giving grantees flexibility for mode choices and holding them accountable for performance outcomes. This fosters poor decision-making and hinders systematic programs of transportation investment.

Unfortunately, a gas tax increase will solidify modal silos further instead of moving us closer to reform. Gas tax revenues are collected from highway users, and if a rate increase is successful, it will likely be because it is seen as a “user fee” rather than a tax. Under user fee financing, users pay and therefore expect to directly receive all of the benefits. This makes it challenging to use the funds collected for any purpose other than highways. While transit and bikes and pedestrians have all carved out a portion of the gas tax for themselves, this is not the same as making strategic, systematic, programmatic investments across modes. Such investments are only possible when grantees have wide flexibility in how they spend their funds, along with strong accountability for outcomes. A gas tax increase at this point, before we have established performance measures that hold grantees accountable for national goals across modes, will only perpetuate our modally divided system.

Conclusions

None of this is to say that we should not advocate for a gas tax increase. The problem of underinvestment is a serious one that compromises our nation’s economic future. We need more funds for transportation and if the gas tax is the only way to get there, it is better than doing nothing. But Mr. Blumenauer’s proposal has, to say the least, numerous challenges ahead of it. At this point, it may be easier to imagine Congress continuing to use general funds for transportation, perhaps in even greater amounts.

We cannot focus exclusively on a gas tax increase or increased revenues of any kind and assume that this will solve our transportation problems, or even come close. Real solutions can only be achieved through more innovative and strategic investment decisions, and we must view this as an equally, if not more important component of what we need to achieve in the next surface transportation bill. Unfortunately it is possible that a gas tax increase could exacerbate, rather than assist, in improving our decision-making. We must be careful, when looking at any new funding mechanism, not to lose sight of this larger goal.

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