The Gasoline Tax: Too Low to Meet Current Needs
As congress reconvenes, they will shortly reconsider additional funds to the Highway Trust Fund and whether to increase the federal 18.4 cents per gallon gas tax. Republicans are clearly in no mood to raise any tax, but if any tax needs to change, it should be this one.
America needs to change its relationship with the automobile. The environmental problems of the roughly 200 million passenger cars are obvious, less obvious are the deleterious effects on the U.S. economy. The economic strain from oil expenditures, when it is not passed off as a mere consumer inconvenience, is most familiar when in the context of imported oil. Politicians routinely make hay out of the need for greater energy independence, one side vows to pursue independence through a “drill baby, drill” approach. In August, then Presidential candidate Michele Bachmann curiously even promised to bring back $2/gallon oil. The other side advocates greater efficiency and expansion of renewable sources. Both of these sides assume a common goal -- lower fuel costs. Rarely mentioned is the impact car ownership has on household wealth.
Certainly, the nation’s expenditure on fuel alone is staggering. In 2010, the Department of Commerce reported the United States’ trade deficit of $500 billion. News coverage of the trade deficit tends to focus on Chinese imports – our annual deficit with China was roughly half that figure, but no nation or category, not even manufacturing, exceeded the trade imbalance caused by the importation of $336 billion in petroleum products. Reduced by exports, the $265 billion petroleum trade deficit still amounted to a net GDP reduction of over $800 for every man, woman and child.
This fuel impact keeps the attention on oil prices. When they spike, Americans take notice. A sudden 20 or 30 cent a gallon increase sends many to web sites reporting the best local gas prices to shave a few dollars off their weekly fuel costs. Economists and the media extrapolate the price of a barrel of oil and an average price at the pump to their negative or stimulatory effect on the macro economy. The Bureau of Labor Statistics reports that in 2010 the average household spent $2,132 on gasoline and motor oil – a 15% increase could take $319 out of their pockets, but that analysis misses a larger point: However large the expense of fuel prices may be, it is the overall cost of car ownership itself, not just fuel that causes the problem. It is the automobile that devastates our national and personal savings.
New and Used Car Prices Rise
Many consumers find the current average new car price of nearly $30,000 prohibitive. While the durability, quality improvements and tight economy has led many previous new car consumers to the used car market, it has also increased price pressure there. Average prices for cars 1-5 years old increased from $10,500 to $13,200 between 2005 and 2010 according to the National Automobile Dealers Association Used Car Guide. During this same period, Americans experienced very low overall inflation or wage increases.
The problem is, for most suburban and rural Americans, car ownership is an economic necessity. Distances to work, grocery shopping and weekly errands all stretch the reasonable limits of walking and biking, but these communities’ sprawling design presume a mobile population and don’t have the critical mass of non-car owners to create public transit systems. Cities that do have public or mass transit, often have a behavior issue – drivers are reluctant to surrender the flexibility and independence of being able to come and go anywhere at any time they like. Although this problem has begun to hit an economic threshold for some. Whether due to the price of gas, cars, the cost of wear and tear on already-owned cars or other factors, Americans are driving less.
The vehicle miles traveled reported by the U.S. Department of Transportation has grown every year since the Reagan administration, but that trend started to change around 2007. The Federal Highway Administration estimated that in 2007 the total vehicle miles traveled on all roads and streets was 3,031.1 billion; the estimate for 2011 is 2,717.1 billion, a reduction of roughly 10 % in four years. The significance of this reduction is hard to discount. The OPEC oil embargo and the second oil crisis in 1979 corresponding to the Iranian revolution created similar driving drops, but the current drop, though subtle, has been more sustained.
Average End-User Taxes on Gas by Country
Average end-use taxes per gallon (in USD)
This confluence of higher gas prices, car prices and changing behavior signals an opportunity to make an infrastructure shift. Instead of merely seeking ways to mitigate the costs of oil by requiring higher fuel efficiency, flexible fuels and the like, this could be an opportunity to move away from the car trap -- actively discourage personal automobile use and promote public transit through tax policy. The Highway Trust Fund’s 18.4 cent a gallon rate is one of the lowest in the world. A 20 cent increase would keep our rate well below most of the developed world, but if a large portion is devoted to mass transit it could significantly bolster this underfunded aspect of our infrastructure, create jobs, reduce consumers need for automobiles and wean us from the billions now spent on foreign oil.