Several weeks ago John McCain floated the idea of suspending the federal gasoline tax for the summer. Hillary Clinton seconded the plan more recently and added to it the idea of a windfall profits tax on oil companies. Barack Obama objected to lifting the gas tax, but favored the windfall tax.
McCain and Clinton each make good point. Neither has proposed that this is a solution to long-term problems, but rather a short-term benefit to consumers. The 18.4 cents per gallon that gasoline consumers pay in federal taxes will probably not drop the price of gas below $3.00 a gallon, but if people and families are planning to take any driving vacations this summer (or even if they just want to get back and forth to work) they will likely notice it.
Barack Obama countered that most gasoline consumers would only save about $30 over the course of the summer (as far as I know, he hasn't shared his methodology for getting to this estimate). He's also made the back-up argument, in case people think an extra $30 isn't so bad, that reducing the federal tax might cause the the price of gasoline to rise to the point that the tax reduction would be offset, anyway. (As far as I know, he has not ventured a theory about whether imposing a windfall tax on oil companies might also raise the price of gas).
What I think is interesting about this debate is that both positions on the gas tax are pretty reasonable. Gasoline taxes (as part of a tax on diesel and liquefied petroleum gas) are levied at both the state and federal levels. This map shows the combined gasoline tax rates, as of January 2008, for the 50 states.
Texas is on the low end of the spectrum. The 18.4-cent federal tax is combined here with a 20-cent state gasoline tax (if you wonder why the phrase "fiscal crisis" gets used so often in relation to Texas, consider that this nationally very low tax rate is one of our largest sources of state revenue).
The majority of the revenue collected from these taxes, at both the state and federal levels, goes to pay for highway construction and maintenance. The costs of steel and concrete have risen considerably in the last several years (by some estimates by as much as 300%). Neither the federal nor the Texas state gas taxes have been raised in some time. This means that the purchasing power of each of these taxes has fallen dramatically.
The state tax was raised to 20 cents per gallon in 1991; the federal tax has been at its current rate since 1993. The state gasoline tax in Texas is now worth 13 cents in adjusted dollars; even less than it was worth in 1991. The federal gas tax is worth about 12 cents per gallon in adjusted dollars. (The Bureau of Labor Statistics website has a handy and fun inflation calculator.)
What this means, is that the gas tax is pretty useless at its present rate. McCain and Clinton have a strong leg to stand on here: why should we keep collecting a tax that's so far out of proportion to the costs of what it pays for? It's a small drop in the bucket of highway costs. If consumers will notice the extra money they save, whether it's $30 or $130, then maybe it is actually more effective as a repealed tax than as a collected one.
Obama also has a good point here, though. Even though the taxes don't come anywhere near covering the costs of highway construction and maintenance, should we really make the situation worse by not collecting it during the busiest driving season of the year?
If the gas tax is going to stay (whether at the federal or state level) then it only makes sense to not only raise it, but index it, as well, so it continues to rise with some indicator of inflation. The problem, of course, is that concrete and steel costs rise so sharply each year that indexing the gas tax to them would make gas very, very expensive very, very quickly.
Indexing it to something that rises more predictably, like the overall consumer price index, still only adds a couple tenths of a cent each year for the next few years. The gas tax is not going to be able to cover infrastructure costs anymore. (State Representative Mike Krusee also made a compelling argument in favor of abolishing the tax altogether last week at the Texas Transportation Forum).
If there isn't the political or popular will to raise the gasoline tax right now, then why not get rid of it? Why collect a futile tax?