Good Taxes

As millions of Americans hit the road to drive to parties and BBQs this 4th of July, keep in mind the recent announcement that the Federal Highway Program will run out of money next month if Congress doesn’t act to shore up its funding.  Traditionally funded by the gas tax, the highway fund has for years been spending more than it takes in.  The shortfalls have been driven by increasing mileage standards in vehicles, meaning we buy less gas to travel the same distance. The roads experience the same wear and tear but individuals pay less to repair them.

After years of the fund being depleted with no action from Congress, the highway bill has come due.  If Congress fails to act, the level of funding that states receive for road and bridge projects could fall by up to 28%.

Source: http://www.washingtonpost.com/blogs/wonkblog/wp/2014/07/02/why-we-need-to-raise-the-gas-tax-and-then-get-rid-of-it/

Source: http://www.washingtonpost.com/blogs/wonkblog/wp/2014/07/02/why-we-need-to-raise-the-gas-tax-and-then-get-rid-of-it/

One proposed solution, which has surprising bipartisan sponsors in the Senate, is to raise the gas tax by $0.12 over two years.  Doing so would increase the gas tax for the first time since 1993 and raise $164 billion in revenue for the highway fund.  The bill would also index the gas tax to inflation, something that would help prevent similar crises in the future.

Perhaps more importantly, however, the increase in the gas tax would be a de facto carbon tax.  Economists have long recognized that a carbon tax is likely the most efficient way of dealing with carbon emissions.  Perhaps a $0.12 tax per gallon is not large enough to significantly impact the carbon emissions from vehicles in the U.S., but it is still a step in the right direction.  And while any tax has an economic impact, carbon taxes are a classic example of pigouvian taxes: a tax on something society would like to prevent anyway.  Often called a “sin tax” these pigouvian taxes both raise revenue and encourage behavioral change.  They’re also one of the few pieces of economic policy that has been widely endorsed by economists on both ends of the political spectrum.

It’s unclear whether the proposed gas tax will pass either the House or the White House.  It is clear that something must be done to keep the nation’s infrastructure in even a passable state.  There is broad consensus among economists that raising the gas tax would be an efficient way of accomplishing that.  Unfortunately the political case is not nearly as clear as the academic one.

 

Image Credit: Lincoln Group via Wikimedia Commons

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