from Renewing America

Gas, Taxes, and Roads: Present Costs and Future Benefits

Gas and diesel pumps at a gas station in Carlsbad, California (Mike Blake/Courtesy Reuters).

February 24, 2012

Gas and diesel pumps at a gas station in Carlsbad, California (Mike Blake/Courtesy Reuters).
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In 1992, the price of a gallon of gasoline in the United States averaged $1.13; in Maryland, the state tax on that gas was 23.5 cents per gallon, roughly 20 percent of the pump price. Most other states set their taxes at similar levels, while the federal government levies its own separate tax of 18.4 cents. Almost all the funds have gone into paying for repair, maintenance, and expansion of the roads used by all those drivers paying the tax.

Today, the price of a gallon of gas averages more than $3.50 per gallon; the Maryland tax is still just 23.5 cents per gallon, which is only 7 percent of the pump price. Nor has the federal tax increased. So what is the reaction to a proposal by Democratic Governor Martin O’Malley that would roughly double the state gas tax over the next three years, still leaving it well below the level of two decades ago? A growing chorus of protest that appears likely to defeat the tax hike.

The gas tax is perhaps the clearest, most understandable example of that old maxim: you get what you pay for. People understandably do not like taxes where it is unclear what they are getting in return. The gas tax is the opposite: it pays for the roads we all drive on. Pay more, and the result is less congestion and fewer potholes; pay less and, well, don’t complain over flat tires and traffic jams.

Some state governments have figured this out, and are proposing modest hikes in gas taxes to fill yawning holes in their transportation infrastructure budgets. Iowa, Virginia, and Michigan are all considering higher gas taxes to pay for roads, and are facing similar political opposition, though some states like Oregon and North Carolina have managed to approve tax increases.

The Maryland reaction shows why it is so difficult. According to a poll conducted at the behest of the petroleum distributors, seventy-six percent were opposed to an increase in the gas tax, including 68 percent of Democrats and an astonishing 90 percent of Republicans. National polls show similar results, with roughly three-quarters of Americans opposed to higher gas taxes.

There are certainly legitimate criticisms of the Maryland proposal. A weak economy in which pump prices are already rising sharply may not be the best time to raise the tax. Much of the funding would go to expanding mass transit systems, which benefit drivers only indirectly.

But the poll results mostly underscore one of the real dilemmas that make effective governance so difficult. At the end of three years, O’Malley’s proposal is estimated to cost the typical two-car commuting family about $400 extra per year, or $200 per driver. According to research compiled by my colleague Becky Strauss for a forthcoming Renewing America report on transportation infrastructure, the economic costs of traffic congestion, including wasted fuel, averaged $710 per commuter in 2010, more than three times as expensive. But try being the politician arguing for small sacrifices now in exchange for greater benefits later.

Building the U.S. economy for the long haul, however, is going to require a change in that mentality. Whether in infrastructure, education, or research and development, longer-term economic growth requires some reasonable level of government, or joint public-private, investment. And that means taxing now for future benefits. There are many reasonable debates to be had over investment priorities, timing, and appropriate taxation levels. But if the answer is always and everywhere no, that is a recipe for more potholes, poorer schools, and declining innovation.

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