For Restoration…

Restoration of Values

Is gasoline tax too low or too high? Is it needed?

It has been found repeatedly that most of the government’s undertakings become (if they don’t start that way) politicized, wasteful, or devious, or all of the above, and that the logical solution is to take as much of the functions of the society as possible out of the sphere of government operations. The tax on transportation fuels is a good case to test this thesis.
Introduced first at state level (Oregon, 1919), then at federal level (1932)[1], the taxes on gasoline were readily accepted by the public, because their purpose was well understood and acceptable, and also because they were hidden in the price paid at the pump.[2]
In time, however, money from the Highway Trust Fund (HTF) began to be spent on other purposes than roads and bridges. In 1982, Congress legislated that a part of the gas tax should pay for mass transit,[3] proving again that wealth transfer, in this case from drivers on highways to train riders, is the main preoccupation of politicians. Logically, the cost of mass transportation should be covered by the price of tickets.
A study in 2011 has identified dozens of such outlets of misappropriation, such as magnetic levitation trains, preventing drunk driving, and anti-racial profiling programs. [4] The states also spend part of the fuel tax collected for transportation projects on things like Medicaid (Kansas), education (Texas), etc.[5] The fraction of the HTF diverted to other uses was given as 25%.[4]
At the same time, the government has repeatedly found that the highway fund is too low and must be replenished from other sources. It was reported that only 70% of the construction and maintenance costs of the Interstate Highways in the US have been paid through user fees, the balance coming from general fund receipts and other taxes.[6] Other sources report a fraction even lower than 70%.[3][4][7]
This shuffling of funds makes no sense economically, but serves two purposes for politicians: First, there is more money to be consumed as overhead, leading to more jobs available for bureaucrats. For the second, movement of the money from one application is not much discussed, whereas reallocation toward another is always presented to those benefitting from the respective application as a gift from the politicians. This technique is particularly effective when the transfer is achieved in the form of an earmark. Financing highway projects is thus a political exercise, rather than straightforward budgeting based on real costs. This feature was apparent in the American Recovery and Reinvestment Act of 2009 (ARRA, or Stimulus), which allocated $27.5 billion for such projects, all to be determined.[8] Notably, the success of the expenditures was not counted in miles of road, but in the number of jobs created. The latter is a rather fuzzy parameter, so there is no surprise that the results diverge, depending upon whether a politician or an independent checker does the counting, by factors in the case of ARRA from 2.5 to 6.[9] Furthermore, a subsequent examination showed that the stimulus created government jobs and destroyed or forestalled a comparable number of private sector jobs.[8] In reality, for the need of citizens to travel on roads and bridges, the number of jobs created is irrelevant.
The level of taxation of motor fuels and the more general matter of transportation infrastructure have occasionally been subjects of controversy. Recently, there have been strong calls to increase it (for instance, by 35 cents per gallon), on the account of the sharp decrease in oil prices, the depletion of the trust fund, and the poor state of the public transport infrastructure.[10] Alternatively, it was argued that there is no need to increase fuel taxes, because the problem is not lack of revenue but the federal diversion of gas tax revenues, because gas taxes are one of the most regressive taxes, and also because “our highway infrastructure isn’t crumbling.”[11] The latter claim does not fit my experience, driving on roads of Pennsylvania and New York. (It is noteworthy that these two states with roads in deplorable conditions have the highest fuel taxes in the country.[1]) The arguments of both sides deserve, however, scrutiny.
Increasing the tax to take advantage of low oil prices is a bad idea, because prices fluctuate. Many predict that high prices will return within 1-2 years. Also, the number stated, 35c/gal, or any other for that matter, has no basis because the whole approach in financing is flawed. It never starts from the determination of how much is needed and on what specific projects. For instance, when ARRA was passed, all that the public was told by the president was that the money was to be spent on (unspecified) shovel-ready projects,[12[(a) only to hear from the same president, one year later, that there is no such thing as shovel ready projects.[12[(b) Shovel or no shovel, by now there should be an account of the individual tasks funded by ARRA executed and how much each of them cost. Any talk about funds needed should start from an examination of that account.
Undeterred by such uncertainties, senator Bernie Sanders introduced an amendment to the budget, calling for a $478 billion for infrastructure projects. Whereas the ARRA was paid by money fabricated by the Fed, to be taken from taxpayers later, Mr. Sanders proposed an array of new taxes on corporations. He is an admitted socialist, so is more straightforward that his colleagues who also voted for the ARRA and for many other bills reflecting the same philosophy.
It is a basic feature of socialism that you don’t pay when you use something, but you pay when you don’t. As a rule, the government controls both the payment and distribution steps, thus strengthening its control over the population. Thus, the set-up differs from transactions between individuals or private entities, such as installment and deferred payment sales, in which none of the parties has power over the other and both parties have freedom of choice. Besides roads, “things” used that cost money are education, medical care, and others. The socialist arrangement is costly, wasteful, corrupt, unjust, and oppressive.
At the same time, the argument that fuel taxes are regressive is flawed. It was also surprising to find this argument in a libertarian publication.[11] The complaint should be that a user fee[3] is being treated as a tax. Because the limousines of the rich and the jalopies of the poor use and wear the roads in equal measure, the level of payments for the infrastructure should be determined only by the extent of its use by the payer. In this respect, incorporating the fee into the gasoline price is not the proper approach, because of the different fuel economy of engines and existence of electric cars.[11] Among the alternatives, toll roads were recommended, because they can be easier adjusted to the changing cost of road construction and maintenance.[14] Toll gates, however, produce congestion and add to the investment for the construction of a road. Therefore, imposing a per-mile road fee seems better. A pilot program is set to be started in Oregon.[15]
The question remains how to handle the case of the indigent, who cannot pay the fees for using the road. An answer was found some generations back. In a beautiful literary rendition of the history of this country in the time straddling the nineteenth and twentieth centuries, Rose Lane noted that in those days construction of the roads was citizens’ business, not government’s. People spent a few days every year working on roads. Those for whom time was more precious than money, were allowed to pay instead.[16] Today, most people can pay, so it is the few who cannot who should be asked to contribute labor. For instance, single mothers on public assistance could take charge of landscaping the right-of-way, while a few of them would mind their children. This activity with visible results would foster the dignity and freedom of those women.
No matter what the manner of collection is, administration of the program by the government assures that politicians will always use it to bring home the”pork.”[14] Other unrelated considerations, such as creating jobs even at a cost greater than the value of the work produced, or influencing consumer behavior,[17] (a rather sinister government activity) will also enter any decision of funding and implementation.
Taking the management and financing of the transportation infrastructure from government administration will assure efficient operation and minimize waste. A national franchise or authority should be established, and the same pattern can be replicated at state level. A board made up of members nominated in equal numbers by each political party, could act as executive and hire the CEO or general manager. Budgeting should start from an infrastructure inventory and determination of costs for maintenance, repairs and renovation. Separately, projects for new objectives should be budgeted, also without interference from the Legislative or Executive branches. Based on the projected expenditures, number of registered cars, and distances driven in a year, the fee per mile traveled can be determined. The miles traveled are easily measured. The odometer readout has to be reported in the application for license renewal in some states. Tampering with an odometer should be made a criminal offense and odometer verification should be a part of the state annual car inspection. Any form of political intervention or non-economic preconditions (including preference to closed or union shops) in awarding contracts should be outlawed. All the workings of the board, administrators, and managers, and all contracts should be open to the public.
Basing the charges on the extent of road use is the most equitable approach. For total fairness, the buggies of the Amish and even the bicycles of cyclo-tourism afficionados should be charged for road use, perhaps by requiring users to buy an annual stamp.

References
[1] Fuel taxes in the United States; http://en.wikipedia.org/wiki/Fuel_taxes_in_the_United_States
[2] Joseph Thorndike, The Gas Tax Doesn’t Work Because Politicians Broke It, 10/24/2013; http://www.forbes.com/sites/taxanalysts/2013/10/24/the-gas-tax-doesnt-work-because-politicians-broke-it/
[3] C Robert Puentes and Ryan Prince, Fueling Transportation Finance: A Primer on the Gas Tax, March 2003; http://www.brookings.edu/es/urban/publications/gastax.pdf
[4] Veronique de Rugy, The Facts about Transportation Spending. Separating economic myths from economic truths, June 17, 2011; http://reason.com/archives/2011/06/17/the-facts-about-transportation
[5] Damian Paleta, States Siphon Gas Tax for Other Uses. Makes Them More Reliant on Federal Assistance for New Infrastructure. Wall Street Journal, July 16, 2014; http://www.wsj.com/articles/states-siphon-gas-tax-for-other-uses-1405558382
[6] http://en.wikipedia.org/wiki/Interstate_Highway_System
[7] Gabriel Roth, Federal Highway Funding, June 2010; http://www.downsizinggovernment.org/transportation/federal-highway-funding
[8] American Recovery and Reinvestment Act of 2009 (ARRA); http://en.wikipedia.org/wiki/American_Recovery_and_Reinvestment_Act_of_2009
[9] Janie Har, Politifact, March. 23, 2012
http://www.politifact.com/oregon/statements/2012/mar/23/peter-defazio/did-transportation-projects-create-more-one-third-/
[10] Jeffrey D. Sachs, Why It’s Time to Raise the Federal Tax on Gasoline, Jan. 19, 2015; http://www.politico.com/magazine/story/2015/01/why-its-time-to-raise-the-federal-tax-on-gasoline-114380.html#.VRawb_zF-3Q
[11] Randal O’Toole, Five Reasons Not to Raise the Gas Tax, July 3, 2014; http://www.cato.org/publications/commentary/five-reasons-not-raise-gas-tax
[12](a) Brian Naylor, Feb. 09, 2009 Stimulus Bill Gives ‘Shovel-Ready’ Projects Priority; http://www.npr.org/templates/story/story.php?storyId=100295436 (b) Stephanie Condon, Obama: “No Such Thing as Shovel-Ready Projects”, Oct. 13, 2010; http://www.cbsnews.com/news/obama-no-such-thing-as-shovel-ready-projects/
[13] Eric Pianin, $478B Infrastructure Bill Blocked by Senate GOP; The Fiscal Times, 25 March 2015, http://finance.yahoo.com/news/478b-infrastructure-bill-blocked-senate-123000148.html
[14] Peter Samuel, The Role of Tolls in Financing 21st Century Highways; http://reason.org/files/7227d934ecfa04d5db576c126f0385a6.pdf
[15] Jim Hoft, Oregon Becomes First State to Impose Per-Mile Road Tax, March 9, 2015; http://www.thegatewaypundit.com/2015/03/oregon-becomes-first-state-to-impose-per-mile-road-tax/#!
[16] Rose Wilder Lane, Old Home Town, (first printed in 1935), Bison Books, Univ. of Nebraska Press, 1985,
[17] Shanjun Li, Joshua Linn, Erich Muehlegger, Gasoline Taxes and Consumer Behavior, March 2011; http://economics.stanford.edu/files/muehlegger3_15.pdf

One response to “Is gasoline tax too low or too high? Is it needed?

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