Stephen Rees's blog

Thoughts about the relationships between transport and the urban area it serves

50% hike in gas tax pushed

with 3 comments

Philadelphia Enquirer

The US federal gas tax is a predicated tax. That is to say it can only be spent on two things – building roads and investing in transit. It cannot be used for maintaining existing systems either. So the states have a financial incentive to neglect the maintenance of road and bridges until they can get federal funding to build new ones.

Dedicating tax revenue stream to a particular purpose is populism. It appeals to those who dislike taxes – and government spending in general – by limiting the ability of politicians to make spending decisions. Of course this has not stopped the politicians at all – it simply changes the way decisions are made. There is now a fund in existence and the p0liticians regard getting their constituency as much as possible of it as a badge of honour. This of course has made the highway fund one of the biggest pork barrels in the country.  Pork being the spending benefit that the local business community gets from these projects.

The rise in gas prices in the middle of last year encouraged Americans to drive less, switch to more economical vehicles and use transit more. At the same time transit systems across the land are running low on operating funds and many are considering servcie cuts and fare increases to balance their books.

The immediate short term fix is to raise gas taxes. Americans pay some of the lowest pump prices (including tax) of any nation on earth – but that does not help a new American president make an unpopular decision at a time when people have seen their disposable incomes fall.

The financing commission believes the long-term solution is a mileage-based revenue system. While details have not been worked out, such a system would mean equipping every car and truck with a device that uses global positioning satellites and transponders to record how many miles the vehicle has been driven, the type of roads and time of day.

Creation and installation of such a system would take about 10 years.

No mention of congestion in there – but that is what “time of day” is needed for. Again, expect a howl of protest. Although Americans in the last eight years have seen many of their personal liberties eroded or ended altogether in the “war on terror” the overall response has been muted. People put up with nonsense like searches at airports and being forced to drink their own breast milk because of the link to security. They are much less likely to accept tracking of all their movements even if it does mean that the bridges might actually stay up a bit longer. But tracking every mile that is driven to pay for a bus driver’s wages seems less likely to raise much of a cheer.

As I have commented elsewhere, dedicating taxes is not a Good Idea – except in the very short run concern to get a new tax accepted. Much better to have all taxes go into a general fund, then make decisions based on current needs and priorities. Federal funding must be made available for operations and maintenenace as well as capital spending and full life cycle cost analysis must become mandatory. An ounce of maintenance is usually worth several pounds of investment.

But we also need to pay heed to this debate because we too have been suckered in to this gas tax farago. Translink gets its funding from the volume of gas sold – and as people make better decisions about driving less and using transit more its funding suffers. This is perverse. While there appears to be some element of equity in transferring money from the pocket of the SUV driver to the bus passenger  the present reality is that Translink’s funding is inadequate – and the better it does its job in terms of increasing market share the less revenue it can expect.

We need to think differently – and the level of discourse about taxation has fallen to a very low point when any discussion of tax is described as “cash grab” and all politicians are assumed to be only interested in filling the pockets of their supporters. We have to start the deabte in terms of what direction  we need to take and how we use the tax system to correct the wprst excesses of the unfettered market. Obviously the way we pay for energy, ignoring all externalities has lead to a very wide range of ills. Not that countries that tax fuels more heavily have done a great deal better – but tyhey do tend to have more and better transit service at least. And smaller  more fuel effcient vehicles. But that is not a function of how the specific tax revenue is spent – it is based on people behaving rationally when faced with price signals that make some sense.

Written by Stephen Rees

January 5, 2009 at 11:58 am

Posted in Economics, energy

3 Responses

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  1. sherry

    January 5, 2009 at 7:45 pm

  2. It’s sad that people oppose gas tax so passionately and irrationally. When people see factory chimneys, no amount of tax is enough, but when pollution is coming out from their tailpipes, any tax is too much. The concept of “polluters pay” is thrown out of window as soon as people realize they the polluters.

    Is there any legislation or movement underway that will change the status quo?


    January 6, 2009 at 12:47 pm

  3. The NDP have shamelessly played to that mind set with their “axe the tax” campaign in BC. Of course business has to pay the tax too – but all they will do is pass it along to the consumer. Which is one reason why it started low as business would quickly find reasons to move if BC got too far out of step with its neighbours. BC has already seen a lot of business move to Alberta where the tax regime is more generous to business.

    Stephen Rees

    January 6, 2009 at 1:19 pm

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