Tax Gasoline, Save the Highway Trust Fund, and Help the Economy (and the Planet)

Continuing its recent habit of allowing a foreseeable problem to become a full-blown crisis, Congress has so far done nothing to prevent the looming insolvency of the federal Highway Trust Fund (HTF). The HTF is a dedicated account from which the U.S. Treasury draws to pay for road construction (and provide support for mass transit). Because the gasoline tax—the HTF’s primary source of dedicated revenue—has not been increased since 1993, more has been spent from the HTF than it has taken in for years. Since 2008, Congress has needed to transfer $54 billion from the U.S. Treasury’s general fund to the trust fund to prevent its insolvency. Unless Congress again transfers general funds to the HTF, or otherwise closes its funding gap, the trust fund is expected to go bust this August. And if highway spending were to be reduced to the level of current revenues for one year, because the trust fund “has no authority to borrow additional funds,” it would cost our economy 160,000 to 320,000 jobs, using my colleague Josh Bivens’s methodology.

I should note two things about this short history. First, there’s no particular economic problem facing the federal government here. HTF spending is already factored into the federal budget’s baseline. Continuing to finance its operations with general fund transfers will hence do nothing to increase overall projected federal budget deficits. Instead, this is largely an accounting problem—spending is constrained by the fact that, by law, HTF spending is supported primarily by a dedicated tax. Second, if policymakers nevertheless object to the fiscal non-problem of continuing to finance highway spending in part with general fund transfers, there’s obviously a simple solution. No, not a huge corporate tax break. Instead, we could just raise the federal gasoline tax.

Federal excise taxes on gasoline have been around since 1932, and have been used to fund the HTF since its inception in 1956. The tax first reached its current level of 18.4 cents a gallon in 1993, and since 1997, 15.44 cents of this revenue has gone to the highway account, 2.86 cents to the mass transit account, and 0.1 cent to the “Leaking Underground Storage Tank Trust Fund.” (Yes, there is a dedicated tax so Americans can pay for this particular externality created by the fossil fuel industry, though, according to a significant portion of the House of Representatives, tax incentives for renewables is “picking winners and losers.” Go figure.) If the tax had risen with the economy-wide inflation rate since 1993, it would currently be 30.3 cents per gallon. If it had kept pace with both inflation and the increase in average fuel efficiency, it would be 34.8 cents. (Similarly, the average state gasoline excise tax increased only from 17.55 cents per gallon in 1993 to 21.63 cents in 2012—still not close to keeping pace with inflation and improvements in fuel economy.)

A 34.8 cent per gallon tax would more than make up for the HTF’s shortfall. This year, HTF spending on highways and mass transit will be $53 billion; revenue—mostly from the gasoline tax, but also from taxes on diesel and other types of fuel, tires, and truck and tractor sales—will be $38 billion. Even with a discrepancy that large, the Joint Committee on Taxation projects that it would only take a fuel tax increase of 10 to 15 cents per gallon to close it. (Conversely, eliminating the 10-year gap only by cutting spending would take a 35 percent reduction in HTF spending. Eliminating two years’ worth of new spending commitments would only close the gap for six years.) Senators Chris Murphy (D-Conn.) and Bob Corker (R-Tenn.) proposed a tax increase to make the fund solvent for the foreseeable future: a 12 cent per gallon hike and indexing the tax to inflation. (The proposal, even though it is larded up with corporate tax giveaways to make it more politically palatable to Republicans, stands little chance in the House—despite support from organizations like AAA and the U.S. Chamber of Commerce.)

Though regressive (at least through the upper half of the income distribution), an increase in the gasoline tax equivalent to 3.3 percent of the average per gallon price nationwide is absolutely preferable to letting the HTF go belly up, or to slashing spending on roads—if those are the alternatives. Funding road construction by taxing gasoline, rather than from the general fund, also serves the purpose of making sure roads are paid for by their users, as was originally intended when the HTF was established. The gasoline tax is also a tax on the negative externalities of air pollution and carbon emissions. (Another proposal, taxing vehicle miles traveled (VMT) would be a disincentive to purchasing fuel-efficient cars.)

More important, however, is the necessity of improving our public infrastructure. In 2012, the Federal Highway Administration identified “significant opportunities for investments to improve the current state of highways and bridges” that added up to $170 billion a year. In this year’s infrastructure report card, the American Society of Civil Engineers gave America’s road infrastructure a D.

And especially at a time of low interest rates, elevated joblessness, and depressed consumer demand, an increase in infrastructure spending would boost the economy and create jobs. As just one example of this point, Standard and Poor’s recently found that $1.3 billion in increased infrastructure spending would create 29,000 jobs in the construction sector and would add “even more jobs to other infrastructure-related industries,” all while adding $2 billion to GDP and cutting $200 million from the deficit. This is consistent with a 2012 paper by two economists at the San Francisco Fed, who found the fiscal multiplier for federal highway spending “ranges from 1.5 to 3,” meaning that for every $1 increase in federal highway funding, the economy would grow by between $1.50 and $3. Finally, the Brookings Institution shows that infrastructure jobs offer relatively equitable pay and are a source of opportunity for workers with only a high school education.

Increasing the gasoline tax—thus discouraging driving, incentivizing higher fuel efficiency, and enabling job-creating infrastructure spending—would be a good bang for the buck (or for the 12 cents a gallon).

  • mulp

    In 1983, President Reagan signed a 125% tax hike and his statement at the public signing would be almost 100% applicable today. See

    “Anyone who’s driven the family car lately knows what it’s like to hit a pothole — a frustration, expense, a danger caused by poor road maintenance. Woeful tales of highway disrepair have become part of the trucking lore. Bridges are crumbling from under us in many of our older cities while growth is being stifled in our newer ones, because the transportation system can’t cope with the expanding population.”

    “Overall, we have 4,000 miles of Interstate Highway that needs resurfacing and 23,000 bridges that need replacement or repair. Our cities need new buses, new or rebuilt railcars, and track improvements that will cost $50 billion during the next 10 years. Common sense tells us that it will cost a lot less to keep the system we have in good repair than to let it disintegrate and have to start over from scratch. Clearly this program is an investment in tomorrow that we must make today. It will allow us to complete the interstate system, make most — the interstate repairs and strengthen and improve our bridges, make all of us safer, and help our cities meet their public transit needs.”

    “The repairs and construction are expected to stimulate about 170,000 jobs, with an additional 150,000 jobs created in related industries. Another provision in this bill adds up to 6 weeks of unemployment benefits for people who have used up all their unemployment insurance. Such badly needed assistance will put more than half a billion dollars into the pockets of family budgets of our long-term unemployed.”

    “While the action we take today will bring some relief to those of us who so want to work and yet cannot find jobs, its principal benefit will be to ensure that our roads and transit systems are safe, efficient, and in good repair. The state of our transportation system affects our commerce, our economy, and our future.”

    Reagan signed it when unemployment was 10.8% and his odds of reelection were near zero, and after signing it, the economy began recovering and unemployment fell to what it was when he was elected, reversing the job losses caused by his tax cut budget in 1981. That’s the reason conservatives oppose it – they don’t want job creation.