Is there such a thing as a good tax?
Many would quickly respond – “heck no.” Or, “aren’t we taxed enough already?”
American businesses are subject to an array of federal, state and municipal taxes. There is debate about whether the federal corporate tax is too high and many question whether taxes in general are being wisely spent, or simply contribute to the expansion of a monolithic government. But there is a tax that directly benefits the economy as a whole and provides a payback we can see with our own eyes: the gas tax.
The current federal tax on gasoline at the pump is 18.4 cents, which was put in place in 1993. Diesel is taxed at 24.4 cents to the gallon. States add to this amount with their own taxes on fuel.
However, the per-barrel cost of West Texas Intermediate oil has fallen to about $45 as of Jan. 15 from a high of more than $100 in the past six months due to over-production coupled with a weak global economy. Saudi Arabia has not agreed to rein in production to prop up the price of oil, as it has in the past to support other OPEC members, and new U.S. shale oil production is booming. Gasoline prices, as a result, have tumbled below $2 a gallon and in many states are down more than 40 percent since the fall. Not even the savviest of analysts forecasted such a dramatic drop in oil prices. Diesel prices, which power the majority of the nation’s trucks and locomotives, have come down too, albeit at a slower rate.
The decline in fuel prices is a double-edged sword for the U.S. economy since we have become such a dominant energy producer in recent years. But shippers, carriers and consumers are experiencing a giant windfall in fuel savings. It’s as if we collectively received a tax cut, with the savings put to other uses.
Yet it’s undeniable that the U.S. transportation infrastructure—once a model for the rest of the world—is rapidly crumbling from overuse and neglect. The American Society for Civil Engineers in 2013 gave the country’s infrastructure a “D+” grade and estimated that $3.6 trillion in investment will be needed for fixes and upgrades by 2020. There’s only so long that we can keep driving forward with the blinders on.
However, to pay for new infrastructure won’t come easy, especially with the Highway Trust Find expected to come up short by a whopping $160 billion over the next 10 years. The downside of more efficient vehicles on the road in recent years is that less money is generated from fuel taxes than ever before.
That’s why it’s time to raise the existing federal gas tax, which is really a user fee that benefits those who drive the nation’s highways and ride its transit systems. The gas tax is not a perfect system and has to be replaced or coupled with other revenue sources to generate enough funds to maintain a modern transportation system. But increasing the gas tax at least acts as a bridge until Congress can figure out how to implement a vehicle-miles-traveled fee or some other system. The American Trucking Associations, the U.S. Chamber of Commerce and other businesses groups support an increase in motor fuel taxes even though their members will end up paying more.
Since taking office, President Obama has rejected a gas-tax hike, saying Americans struggling to make ends meet after the recession couldn’t afford another expense. But times have changed.
The U.S. economy is on firm footing again, growing 5 percent in the third quarter and 4.6 percent in the second quarter. Employment numbers are excellent, averaging more than 200,000 per month and the unemployment rate has finally fallen below 6 percent. Consumer spending is solid and factory utilization levels are relatively high.
We can afford a gas tax increase without slowing the economy.
While many people still don’t trust the government to use highway dollars well, it should be noted that this Congress and administration have done a lot over the past six years to establish more performance-based metrics and incentives for states to choose infrastructure projects wisely. However, no doubt more reforms are needed to make sure the best projects are selected for TIGER grants and other projects. An infrastructure bank could help in this regard.
Going forward, it will be important for the government to prioritize projects and make sure Highway Trust Fund money is fenced off for transportation infrastructure. Strong leadership in Congress and the White House will also go a long way to help the public accept higher gas taxes.
This editorial was published in the February 2015 issue of American Shipper.
