Posted by: dstieglitz | November 30, 2011

RAISING GAS TAXES

     I spent an hour on I-495, the beltway around Washington DC, recently for a trip that usually takes 15 minutes, so I wasn’t surprised when the Texas Transportation Institute Urban Mobility Report said the Washington area has the worst traffic congestion in the country. Their report said that in 2010 DC-area residents wasted an average of 74 hours and 37 gallons of gas per driver stuck in traffic – at a cost of $1,500 per commuter. The report said: “The current pace of transportation improvements isn’t sufficient to keep pace with even slow growth. Vehicle-miles are growing faster than capacity.” So I applauded when Governor Martin O’Malley of Maryland had the political courage to support raising the gasoline tax to repair and expand the state’s highways and bridges.

Specifics of the Increase.  The governor’s recommendation, which the Maryland legislature will consider early in 2012, would increase the tax by five cents in each of the next three years from 23.5 cents to 38.5 cents per gallon. O’Malley said: “The fact of the matter is, it costs more today to paint the Chesapeake Bay Bridge than it did to build the first span (in 1952).” Maryland set the tax at the current rate in 1992 when gasoline was $1.10 a gallon – at the time, 23.5 cents per gallon was a 21% tax. Today, with gas at $3.50 per gallon, Maryland’s gas tax has dropped to just 6.7%. Assuming gas prices don’t change over the next three years, the new tax would be 11% when fully implemented. The increase would raise $491 million annually to be spent entirely for transportation repair and construction. By comparison, the federal gas tax was set at its current 18.4 cents per gallon in 1993. At that time the federal gas tax was 17% – today it has dropped to 5.3%. It’s no surprise that our national transportation system is literally falling apart, and DC-area roads are the country’s most congested.

The Opposing View.  The Governor’s announcement got blasted from both ends of the political spectrum. Pro-business advocates say the trucking industry and businesses that rely on transportation will see increased costs at a particularly inopportune time. And liberals say the proposed increase would strain workers who are already struggling with high unemployment and falling home prices. There hasn’t been a “good” time to increase state or federal gas taxes in nearly 20 years! 

Why It’s a Good Idea.  The short-term hardship of higher gas prices must be balanced against the urgent need for massive transportation improvements. The consequences of not investing in infrastructure will have even greater costs in terms of declining highway safety, dirty air, reduced global competitiveness, and continued high unemployment. Infrastructure must be part of the debate about what we expect our government to do, and how we are willing to pay for it. 

Our Crumbling Infrastructure.  According to a study by the Urban Land Institute (ULI), the U.S. is falling behind the world in rebuilding its deteriorating and overloaded transportation system because of often-postponed maintenance. The Surface Transportation Act, which provides federal funding for bridges and highways, expired in 2009 and Congress is gridlocked (what’s new?) over how much to spend and how to pay for it. Specifically, according to the ULI, the U.S. isn’t keeping up with three economic competitors: China, India and Brazil. China is spending $1 trillion over five years (3.4% per year of its $5.9 trillion GDP) on highways, high-speed rail and other infrastructure. India is near the end of a 5-year, $500 billion (6.3% per year of its $1.6 trillion GDP) infrastructure investment and will double that by 2017. And Brazil will spend $900 billion (10.7% per year of its $2.1 trillion GDP) on infrastructure by 2014. Incidentally, their economies are growing two to five time faster than the U.S. annual rate of 1.7% (Brazil=3.6%, India=6.1% and China=9.0% annualized GDP growth) according to The Economist

How Much is Required?  The ULI says the U.S. needs to invest $2 trillion over the next five years (2.8% per year of its $14.3 trillion GDP) to rebuild roads, bridges, water and sewage systems, and dams that are near the end of their useful lives – which probably would require the federal gas tax (currently 18.4 cents per gallon) to double. Where will a bankrupt federal government find that money if not through increased gas taxes which historically pay for such projects? Whether we fund infrastructure investments through gas taxes or pay more because of worsening traffic delays and potholes is a choice. Governor O’Malley said: “Bridges aren’t like trees – they don’t grow stronger with age – they become brittle and crumble. That’s why they need to be repaired before moms and dad die on their way to work when they collapse in rivers;” – the later remark referring to the 2007 collapse of an interstate highway bridge near Minneapolis that killed 13 people and injured 150 others. 

Higher Prices Force New Choices. Increasing the gas tax is a simple way to rebuild our infrastructure – and deal with energy issues and global warming at the same time. Of course, higher gas prices will hurt economically – and that’s a good thing in the long run because it will change behaviors. When gas costs more, people will buy more hybrids and fewer gas-guzzling SUVs. They will drive less, and use public transportation and carpools more. With higher gas taxes, drivers will pay the real cost of the roads they drive on, highways will be less congested, and carbon emissions will drop. Companies will be incentivized to build more efficient cars and trucks, develop synthetic fuels, and manufacture goods closer to their U.S. buyers. It’s no mystery that cars in Europe get better gas mileage and their public transportation is vastly superior – their gas taxes make filling up twice as expensive as in the U.S. 

How to Get There From Here.  With gas near $4 a gallon, you might say we can’t afford to pay more – and many people can’t. Furthermore, in these anti-tax times, passing an increase will be controversial. But by phasing in a tax increase over three to five years, families and businesses would have time to adjust their lifestyles and business practices. As people change their driving habits, oil imports would drop, which would keep money and jobs in the U.S. instead of sending them to unfriendly suppliers in the Middle East and Venezuela. 

Boost the Economy and Produce Jobs.  Tom Donohue, President of the U.S. Chamber of Commerce, said that increased spending on infrastructure was “not just transportation for transportation’s sake. Without robust growth, the U.S. will not create the 20 million jobs we need to replace those lost in the recession.” For example, the $491 million Governor O’Malley expects to raise annually to fund transportation projects will create about 5,000 new jobs in Maryland. Without highway improvements, businesses will be forced to divert resources to pay for vehicle repairs and transportation delays caused by bad roads – wasting money that could be invested in expansion and new jobs. 

Doing Nothing is the Most Expensive Option.  While Congress debates the country’s transportation needs, crumbling roads, bridges, railroads and transit systems cost the U.S. $129 billion a year according to the American Society of Civil Engineers (ASCE) – $97 billion per year in additional vehicle operating costs and $32 billion in productivity loses due to traffic jams. Slashing infrastructure investments as Congress has done recently will have an enormously adverse impact on the economy – especially middle class workers. The ASCE said that if investments in transportation are not made soon, the wasted costs will grow to $430 billion per year within ten years.

Come On, Congress – Find Some Courage!  I’m usually against tax increases of any kind – but I’m definitely for this one. Allowing our infrastructure to deteriorate by refusing to raise the gas tax for nearly 20 years has been fiscally irresponsible since the tax is the primary revenue source for the Highway Trust Fund. Historically, the federal transportation program has been specified in legislation that budgets money for a 6-year period to give states time to design and complete construction projects. It looks like Maryland is finally addressing its state-owned infrastructure deficiencies. Come on, Congress…find the courage to make a smart change about our interstate highways and other transportation systems – fund improvements and create jobs with an increase in the gas tax.

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