Government’s Addiction To Gas Is Not A Transportation Solution
By Jason Kenney | Monday, April 25th, 2011 | PolicyVirginia Democrats love the idea of increasing gas taxes to pay for transportation. The long term problem with such a plan is it creates a government addition to gasoline, removing any incentives for the promotion of cheaper, renewable alternatives.
Take for example Washington State. For years they’ve been pushing fuel-efficient cars with tax breaks. And with success.
Problem is, while those cars don’t suck up as much gas, they still put some wear and tear on the roads. So…
Washington state lawmakers are considering a measure to charge them a $100 annual fee — what would be the nation’s first electric car fee.
State lawmakers grappling with a $5 billion deficit are facing declining gas tax revenue, which means less money to maintain or improve roads.
Whoops.
The more dependent the state’s transportation system is on gasoline, the more dependent the state’s budget is on its consumption. And as gas approaches $4 a gallon and rising with end in sight, states relying on a system that makes it even more expensive to fill up at the pump are going to face some long term issues.
Many drivers are going to change the amount the drive, cutting consumption but also cutting miles, or look for fuel efficient alternatives, which cost more yet still put miles. Or they’ll have to cut elsewhere in order to continue to pay high gas prices to get to and from work in their fuel inefficient car because they can’t afford any alternative.
Hopefully the woes of Washington State are a lesson to Virginia’s Democratic Party leadership that short-sighted, regressive forms of taxation won’t solve anything.
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Jason Kenney has blogged at J’s Notes since 2001, is the director of RedStormPAC providing online fundraising for Republican candidates in Virginia, and co-founder of K6 Consulting. He is a graduate from Virginia Commonwealth University and resides in Richmond, Virginia.
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34 Responses to "Government’s Addiction To Gas Is Not A Transportation Solution"
Jason,
I can’t follow you on how raising the gas tax lowers incentives for alternate fuel. Robert Samuelson, hardly a Democrat or liberal, has postulated on several occasions that whenever the price of gas drops below $3, government should raised the tax to keep it above that level. That encourages conservation and alternatives.
There are many compelling reasons to raise the tax. First, the last time Virginia raised the tax was 1988 when gas was about $1. As gas prices have steadily increased the portion of the pump price that is state tax has declined from 18% to less than 5%.
Second, we consume about 5 billion gallons of mobility fuels in Virginia every year. Each cent that we raise the tax would put $50M more into the transportation budget. With gas costing $4, the average fill-up is about $60. Raising the gas tax ten cents would increase the cost of a fill-up by $1.50, but it would add half a billion dollars to transportation funding. Would anyone driving a car these days really have to choose between buying groceries and paying an extra $1.50 for a tank of gas? In fact, in many parts of the state, motorists would pay less for gas once the congestion was lessened by road improvements. I can promise you that commuters on I-66 in northern Virginia right now are burning a lot more than $1.50 in gas practically every day sitting in stop-and-go, bumper-to-bumper traffic.
Best of all, the gas tax puts the burden for road improvements squarely where it belongs–on road users, regardless of whether they live in Virginia or are driving through.
“No taxes, period,” is a common Republican position. But is one that is based more on political expediency than common sense.
HisRoc,
As alternative fuel vehicle usage grows, gas consumption becomes less correlated to road usage. By tying the two together and creating incentives to cut consumption while not cutting overall usage you target the very income that pays to pave.
As more people switch to electric or hybrid vehicles, gas taxes are not the solution to paying for the roads. Unless you’re all for increasing the burden of government on those who are least able to afford the alternative fuel choices.
I don’t now what democrats have called for, but every business group I know of has stressed that we need increased revenue for transportation. Now, most like to see the Governor building new projects, but with no new revenue source, how will we maintain more assets with the same or less money for maintenance? The Speaker of the House, Bill Howell, and his caucus, have blocked consideration of increased funding for over a decade, to the benefit of much seniority for its members and an estimated $9 billion dollar unfunded maintenance deficit for roads, bridges, and tunnels. Your attempt at misdirection on this issue will fool no one, including this Governor who must be as frustrated with the intrasigence of the Speaker as anyone.
An increased fuel tax does not lower the incentive to save fuel, in fact it does quite the opposite. The lower the fuel efficiency of your vehicle, the more you pay per mile in taxes.
Motivating people to switch to plug-in electrics is a good idea for a couple reasons. It helps to reduce our dependence on foreign crude oil while at the same time reducing CO2 emissions (depending on how your electricity is generated, about half of VA Power’s electricity is generated with nuclear power).
What lowers the incentive to purchase fuel efficient or electric vehicles are toll-roads. Vehicles with the same number of axles pay the same toll no matter what their fuel economy is.
LittleDavid:
A higher tax rate leads to a greater incentive for the market to save fuel, which the state does not want if it is dependent on fuel tax revenues to pay for roads. The problem is that relying on higher fuel taxes to pay for transportation is a flawed strategy and a horribly regressive method that disproportionately impacts those least able to afford it.
A government addicted to gasoline has no incentive to entice the market to embrace alternative fuel.
It is not horribly regressive. Low income earners can simply buy more fuel efficient vehicles. There are plenty of fuel efficient vehicles on the market at affordable prices.
Electric vehicles right now are extremely expensive, and those who purchase them should be assisted. Prices hopefully will come down over time just like calculators and computers did, but we are not there yet.
“Low income earners can simply buy more fuel efficient vehicles.”
With what income? The long term savings of such an investment is offset by the short term realities and needs.
And taxing them into more fuel efficient cars doesn’t solve the transportation issue. In fact, it hurts any “solution” a gas tax creates, stretching any increase thinner with each additional MPG.
If we use less crude oil, it will result in lower prices, supply and demand.
If the poor can afford a gas guzzler, why can’t they afford a fuel efficient vehicle? I have a fuel efficient Suzuki I am thinking about putting on the market. Low mileage and in good mechanical condition although it needs a paint job. Fuel mileage? Better then 30 MPG. Kelly Blue Book says I’ll get about $1.5K for it.
Eventually we will have to come up with something else, but while we are trying to lessen our dependence on foreign crude oil and trying to reduce our CO2 emissions, raising the fuel tax is the way to go.
Well, the lowest income earners probably rely on public transportation anyway. They are the only Americans who CAN be convinced to use public transportation.
A .10 cent increase in the gas tax wouldn’t really create an incentive to drive less or to save gas. Gas prices already fluctuate by more than that in a given day. And to this point, Americans haven’t shown that they care much. I suspect that $4 a gallon may be the tipping point there. As HIsRoc said, that level of increase would hardly be noticeable to the consumer, but would generate significant ongoing revenues for transportation.
If you want to contend that a gas tax is not the proper way to fund roads, then you need to come up with some other way to fund them. So far, Republican proposals in that regard have been moonbeams, pixie dust and debt. While I supported the governor’s bond plan this year, there’s a limit to what it will pay for and to how often you can go back to that well.
Steve,
That is because you are assuming that all the poor live in urban areas where public transportation is available. It is also pretty hard to get a trunk-load of groceries home on the bus.
I get Jason’s point, however the poor need to be motivated to save fuel as well. If we as a society (dare I say species) save fuel everybody wins.
Your story sounded so familiar and then I realized I read Marc Schrad’s NY Times piece “Moscow’s Drinking Problem” a week ago and it is the same. You only substitute gas with vodka. This also sound very similar to discussions regarding the tobacco tax.
Read the story if you’d like: http://www.nytimes.com/2011/04/17/opinion/17Schrad.html?_r=1&scp=1&sq=Kremlin%20AND%20vodka&st=cse
If the tax is to be a transportation user fee then you would have to eliminate the gas tax for highways and have a mileage and weight tax only. (Why should someone idling on the highway for two hours in traffic pay the same user tax as someone moving at 60mph for 120 miles?) The gas or other fuel tax would have to be limited to pollution costs. Anyway, Government will not let you escape taxes with “good” behavior so many of the supposed cost savings of enviro bunny cars will evaporate. (Remember that Obama wants Electricity costs to go much higher too.) What happens when home prices decline? Localities raise the rate to ensure the same income. Do they lower the rates when the price starts rising? Ha Ha ha. Great system.
If there is a bad traffic situation in NVA then shrinking the Federal government will take care of that. If the government keeps growing then no amount of roads will suffice. In addition, the cost of these highway “improvements” is vastly inflated by red tape and enviro bunny regs. Look at what happened in LA vs SF after earthquake damage to roads in the 80s and 90s. LA put the enviro bunnies in a closet and came in ahead of time and under budget.
Jason,
“…disproportionately impacts those least able to afford it.” Not raising the gas tax to raise revenue to relieve traffic congestion disproportionately impacts everyone. This is one of those classic NoVa/Hampton Roads vs. RoVa conflicts. Howell and the Republicans love the tax base that the more populated areas provide the state, but they refuse to send money from Richmond to relieve the strangling traffic. They want to keep taxes as low as possible for the bubbas in their pick-em-up trucks while taxes from NoVa and Hampton Roads subsidize their schools and public safety. Meanwhile, we pay the cost of longer commutes with more fuel consumption, lower productivity at work, less family time at home, and increased environmental damage. Question: when was the last time they had a Code Orange Ozone Alert in Franklin County?
Valentinus,
Not true.
Virginia Power is implementing a pilot program where commuters with electric cars will be able to charge their cars during off peak hours and commute for the entire 40 mile limit of a Chevy Volt (until you switch to gasoline backup) for a charge of only $0.35.
That is real savings, driven by market forces and it is not going to evaporate.
Read about it here:
http://www.engadget.com/2011/02/04/virginia-pilot-program-halves-electricity-bill-for-charging-evs/
Supply and demand, market forces.
HisRoc:
You smile when you call those of us in RoVA, “bubba,” y’hear, boy?
“The more dependent the state’s transportation system is on gasoline, the more dependent the state’s budget is on its consumption.” Jason K, that’s true ONLY IF the tax structure makes it impossible for gasoline tax to keep pace w/ actual cost per vehicle mile driven. Unfortunately, as HisRoc notes, the gas tax model – a fixed cents/per gallon – hasn’t allowed fuel tax to rise with gas prices, inflation or to keep pace with advancements in fuel efficiency. Yet alsmost every other tax we pay (i.e. sales, property, capital gains, cigarette, social security, utility, natural gas, etc.) is calculated on a percentage or based upon usage ~ why is fuel in a special class?
Outdated tax model? Fer sure. Regressive? No more so than any other consumption based tax.
BTW – Out of the 254+ million passenger vehicles on US roadways, 60,000 are electric cars. Not nearly enough to have significant impact (yet) on state revenues – including Washington w/ but 1300 electric cars registered.
SV,
I grew up in rural Virginia Beach when it was known as Princess Anne County (Bayside). Our next door neighbors were Mennonite dairy farmers. As the song goes, “I Was Country Before Country Was Cool.” I still have cousins in Franklin County in the southwest and in Matthews County on the Bay. However, after living in Fairfax County for 20 years now, the increasing neglect of the major economic center of the Commonwealth by the rural county legislators in Richmond is driving me more and more to oppose the RPV and its candidates. Moderate taxation to provide good government services is not evil. Redistributing wealth from one region to benefit another region without meeting the infrastructure needs of the former is wrong.
HisRock ~two thumbs up!
LD ~ for once, just once … would you think it through??!!
Now WHY do you think Dominion Power, which sells ELECTRICITY, would offer 750 lucky customers electricity priced BELOW MARKET RATE, for a set period of time? Could it be …might it be … Dominion Power “supports federal initiatives to lessen our nation’s use of petroleum” because Dominion Power DOESN’T SELL PETROLEUM – but it does happen to generate, transmit and distribute ELECTRICITY?
A person who drives 1,000 miles a year does a lot less damage to the roads than someone driving 10,000 miles a year. But the 1,000 mile driver still needs to have roads to drive on so they should pay a flat car tax.
Driving a Chevy Tahoe 10,000 miles a year does a lot more damage to the roads than driving a Ford Focus 10,000 miles a year. There should be a second tier weight based car tax that increases proportionally with the weight of the vehicle and the damage done to the roads.
The gas tax should be increased to make alternative fuel vehicles price competitive with conventional vehicles. The tax could be used to fund road maintenance and construction along, developing public transportation networks, and providing incentives for purchasing these more efficient vehicles.
There are many ways to fund transportation:
-gas tax
-weight based car tax
-flat car tax
-toll roads
We should be diversify our taxing structure to fund transportation. We should have a flat tax on all vehicles registered in Virginia, a weight based car tax, and “fuel” consumption tax. The taxes simply need to be adjusted to meet the costs of maintaining our roads and providing services to drivers (police, rest stops, etc).
I think it’s clear that we need to rethink where we get our dedicated transportation funding. As we reduce our dependency on gasoline, we’re going to need to find a way to maintain a funding source for roads and other transportation projects. At this point, however, we’re not at the point where we can completely get away from gas powered vehicles. Raising the gas tax should be the absolute last resort, as it hits the portion of the population who can least afford it the hardest – those who don’t have a lot of money, can’t afford a new, fuel efficient car, and need their vehicles to get to jobs and schools.
I think the whole “reduce our dependency on foreign oil” argument is a bit disingenuous – it raises the specter of our country being enslaved to middle eastern oil interests, when the reality is that the two countries we import the bulk of our oil from are Canada and Mexico. Saudi Arabia is third, providing almost a third of what we get from Canada and Mexico.
BrianS & JasonK, if Republicans oppose increasing the gas tax because of its regressive nature – let’s squarely address that objection.
#1 This topic played an important role in the 1990 budget negations; James M. Poterba [MIT Econ. Professor/ Director of National Bureau of Economics Research Program since ’91] and other economists conducted tax policy studies to test the actual regressive impact of gas taxes on households. Using data from the Consumer Expenditure Surveys, the studies found:
- Low expenditure households (low income) devote a smaller share of their budget than their middle-income counterparts.
- Households in the top 5% of the total spending distribution do spend less on gasoline than those who are less well off, however the share of expenditure devoted to gasoline within the rest of the population is much more stable… and the gas tax is much less regressive than conventional analyses suggested.
#2 Even if you choose to totally disregard/discount these study results, just separate tax efficiency from tax equality. Richmond could EASILY alter other taxes at the same time it increased the gas tax to keep the overall progressivity of the tax system in place. Set the gas tax at an efficient level to deal with transportation, and then use the more general taxes to achieve tax distribution/equality goals.
Concerns allayed, problem fixed, and deal done, right?
Brian,
I would be impressed with yours and Jason’s argument that increasing the gas tax “hits the portion of the population who can least afford it the hardest…” if we were talking about raising the gas tax $1 or 50 cents or even 25 cents per gallon. A ten-cent raise would be the first raise in almost a quarter century and would cost about $1.50 on an average fill-up of $60. Show me people who can “least afford it,” and I will show you families with two cars, cable TV, kids with cell phones, and people who eat fast food instead of packing lunches. On the other hand, the people who can “least afford it” would save money in the long run by not wasting gas sitting in traffic congestion instead of earning money at their hourly wage jobs.
I’m sorry, but this whole argument against raising the gas tax is a dog that just won’t hunt.
JayD, first – you’re talking about a study that is 20 years old now. Things have changed, not the least of which is the relative fuel efficiency of our vehicles.
Most of the families who are poor enough to be hurt by raising fuel taxes aren’t paying state income taxes to begin with, so short of handing them back their sales tax – and I don’t know of an easy or effective way of doing that – there’s not much tinkering we can do on that end.
HisRoc, I understand your point and I am not 100% adamantly opposed to raising gas taxes. But before we do that, I want to make sure that we’ve done everything else we can do. I view the power to tax as an extraordinary one and one that isn’t to be used lightly. If we can find an alternative way to fund transportation without raising the gas tax, I’m going to want to go that way first. It shouldn’t be an option that’s absolutely off the table, but it shouldn’t be the first thing we go to, either.
I think we are completely looking at the wrong side of the equation. The problem isn’t a need to increase revenue. The problem is the absolutely sickening level of over-regulation that makes it 15 years to build a highway and making the costs of new roads exponentially more than it needs to be.
Chew on this http://www.rff.org/Documents/RFF-DP-02-12.pdf
Brian really hits the nail on the head. As an advisor to right wing republicans running for office, continued obfuscation and denial is the road to winning. No matter that it has helped create the $9 billion in depreciation of our transportation infrastructure. We must all remember that this is a blog for running, not governing responsibly.
Brian S,
You think “the whole “reduce our dependency on foreign oil” argument is a bit disingenuous…”?
Just over 35% of our imported crude oil comes from Canada and Mexico while almost 41% of it comes from OPEC nations.
I also believe Canada and Mexico or still considered to be foreign countries, aren’t they?
Jay D,
Yes I did think it through, did you?
Virginia Power is offering the below market rates during off peak hours to get more efficient use (and profits) off existing generating capacity. Virginia Power also offers commercial companies below market rates during off peak hours for the same reasons. I also believe that is why they offer cheaper rates in the winter then they do in the summer where they are trying to make electric heat as competitive as possible with other forms of heating.
I believe I also described that as market forces, that is what free market competition is all about, correct?
Now, what was it that I did not think through that you did?
Brian, I realize the study’s age. Yet while everything else has changed (fuel efficiency, price stability, wages, demand, and cost to build roads, etc.), the same argument made (and debunked) in 1990 is still with us.
If gas tax regressivity is a true & real concern, the state can send ‘rebate checks’ to any drivers not paying state income tax. As the federal tax system illustrates so beautifully, the state doesn’t require a tax return to give away cash.
LD, the argument seems to be that we’re beholden to middle eastern oil interests, when the majority of the oil we import doesn’t come from the middle east. While I don’t like be dependent on anyone, I’m not that concerned with the amount of oil we’re importing from two of our closest allies.
At the end of the day, the real issue isn’t about where the oil comes from. It’s about how expensive it is for us to refine once it gets here, and as Kirwin noted, the level of regulation we have that makes it difficult for us to use alternative means of energy we have at our disposal, not to mention the costs for road planning, etc.
Brian S,
More of our oil comes from OPEC then it does from our Canada and Mexico. It does not matter which foreign country it comes from, all of it adds to the imbalance of trade.
You mentioned Brian K and he has also noted how ridiculously expensive modern freeways are. But he is also in favor of toll-roads. Well government run toll-roads are where the the wasteful gold plating exists. How about 3P (Public Private Partnerships)? Well that is where they remove the gold plating from the highways and instead use it to fill their pockets with the gold.
These few pennies per/gal gas tax (a very, very small percentage of total cost of fill-up) are insignificant compared to pump prices we will pay when/if the government stops subsidizing consumer gasoline.
No LD, not “market forces”. Utility companies are natural monopolies; rates are typically set by 1) calculating overall general revenue requirement and then 2) distributing this ‘cost to serve’ efficiently among customer types (residential, industrial, commercial, etc.
Jay D,
I’m not sure if you wished to really describe utility monopolies as natural or really meant unnatural.
Electric utilities have a monopoly, but go look at your electricity bill. It will start with a set rate year round for a certain amount of consumption, but after that it will either go up or down depending on the time of year. In the summer, it goes up because that is during the time of peak demand to pay for air conditioning. During the winter, it goes down because Virginia Power is trying to motivate more people onto electric heating as they have available generating capacity to spare.
Virginia Power is doing the same thing with electric vehicle charging. If you are willing to schedule your battery charging during off peak (early morning hours even in the summer) they can make more money using their existing capacity.
That is still called market forces even if the maximum rates they are allowed to charge are regulated.
Wow, You folks really have no grasp of what it is to be poor. Just driving round trip to work in a year I drive approx 8,320 miles that is just work. Shopping and friends are 12 and 14 miles, respectively. I am a nurse and my income barely keeps me afloat and though I live in redneck land I do not waste money on guns, ATVs, snowmobiles or gauche motorcycles. When tax increases mean the difference twixt eating hamburger or ram-en noodles then you will experience true hurt in the stead of minuscule inconvenience. I would love to buy an efficient vehicle but alas they are so much more expensive than junkers. Not to mention my area has a dearth of cheap efficient cars and a plethora, no, great overabundance of full sized 4×4 trucks. For now I drive a Ford Ranger that gets 30 +/- mpg. I would like to get a Prius but even used they’re just too expensive.
I’m Done rambling.
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