Federal Gas Tax Would Lead To Myriad Benefits

Jan 5 2009 | 12:48am ET

By Pamela Schwab and Christina Erickson -- Two weeks out from the inauguration of President-elect Barack Obama, the buzz is building on what tools will shape the Obama administration’s economic stimulus plan. One of the most simple and effective tools available to them would be an increase of $1/gallon in the federal gas tax.

There are other methods of increasing the federal gas tax, including adjustable and percentage rates; for purposes of this article, a fixed rate is contemplated.

For the first time in American history, our leadership will be open to the idea that a progressive environmental policy can also serve as good economic policy. With cabinet members like Bill Richardson, Ken Salazar, Hilary Clinton and Steven Chu, Obama’s team is positioned to take a holistic approach to the crippling challenges facing the country. A weak economy, the climate crisis and an urgent need to bolster the nation’s energy security are considered priorities.

President Herbert Hoover began using the gasoline tax in 1932 as a means of bolstering general revenues and balancing the federal budget. In 1956, Congress decided to establish the Federal Highway Trust Fund. For the next quarter century, all gas tax revenues became the means to finance the nation’s highway infrastructure.

In 1982, Congress decided to allocate a percentage of the Highway Trust Fund to mass transit initiatives. Today, about 15% of tax revenue generated goes towards mass transit. The federal gas tax hasn’t increased from a rate of 18.4 cents per gallon set back in 1993. In real terms, the gas tax sits far below its 1970 value, thereby keeping the Highway Trust Fund perpetually underfunded.

Discussions of a substantial increase in the federal gasoline tax have been bandied about for years. Its critics described a gasoline tax that would rival those levied in Europe as politically untenable.

Until now, this proposal has had no political viability. President-elect Obama has acknowledged that he will be forced to make some difficult fiscal choices and that all options are now on the table. Americans are coming to terms with these urgent facts: that dependence on foreign oil, unchecked greenhouse gas emissions, and inefficient transportation options have eroded economic security for all and quality of life for many. A severe recession combined with new priorities in the White House may provide the perfect storm for powerful changes that include an increase in the gasoline tax.

Who benefits if Congress raises the federal gasoline tax by $1? Ultimately, it’s the American people. A policy shift of this magnitude would bolster everything from long-term economic stability to national security and public health. Here are a few examples of what is at stake:

More Jobs. The Obama administration will make infrastructure projects a centerpiece of their economic stimulus package. William Millar, president of the American Public Transportation Association, has stated that $1 billion of federal investment into transportation creates about 35,000 jobs.

While estimates vary, using the most recent data provided by the Department of Energy’s Office of Energy Statistics, Treasury could add a revenue stream of $142 billion dollars annually to the federal budget if an additional $1 was added to the gas tax in 2009. Revenue of this magnitude may serve much more than the highway infrastructure and mass transit projects currently underwritten by an underfunded Highway Trust Fund.

In that regard, Obama could also consider doing what was done by presidents beginning with Hoover and ending with Clinton – using the gasoline tax for deficit reduction. Obviously, the Obama administration’s ability to optimize new revenue sources and balance the budget will also play a critical role in shoring up long-term prospects for the economy.

Faster Shift to Clean Technology. Shifting consumer behavior towards efficiency would be the most immediate outcome of a gas tax. Brad Kemp, Director of Regional Research at California-based Beacon Economics, says that "A $1 per gallon gasoline tax makes gas guzzlers less attractive, thereby creating an incentive for consumers to substitute into cleaner technologies." Historically, America has externalized the costs of its oil addiction. A higher gas tax will help level the playing field for homegrown industries that deliver alternative energy sources. It will also encourage our use of more efficient modes of transportation.

In a recent interview with Larry King, Bill Ford, executive chairman of Ford Motor Company, described the critical role low gasoline taxes have played in hindering innovation in our domestic auto market. Ford indicated that for many years now, Ford Motor Company designed and manufactured fuel-efficient models for overseas markets where higher gasoline taxes have been in effect for decades. It is only in the wake of our most recent economic crisis that Ford is now importing these models to the United States in order to meet consumers’ growing demand for fuel efficiency.

Wider Transportation Alternatives. A higher gas tax will reduce oil consumption and increase public transportation choices. Even as oil prices decreased in the third quarter of 2008 and the economy continued to shed jobs, the country experienced the largest quarterly increase in public transportation ridership in 25 years. In November 2008, in the midst of a severe economic crisis, Americans passed 25 ballot measures that increased local or state taxes to fund public transportation.

Climate Change & Public Health Benefits. Decreased oil consumption resulting from a higher gas tax also reduces air pollution. It may slow the effects of the climate crisis as less greenhouse gases build up in the earth’s atmosphere. The negative effects of air pollution on human health are well established. There is also a growing concern in the scientific community around the dire effects global warming will have on public health.

A Safer Nation. America currently produces less than 42% of the oil it requires domestically. An increase in offshore drilling will not change this humbling statistic. As a result, Americans have been shipping their petro dollars to overseas governments who do not share our political interests. By paying more tax on gasoline, we re-invest money at home in the form of increased efficiency and increased national security.

Perhaps one of the most critical benefits overlooked in the debate around a gas tax increase is this: it will increase the value of predictability to our fossil-fuel dependent economy. Permanently high gas prices will allow consumers and the energy industry and its investors the opportunity to make smart, long-term decisions. It will help us avoid the uncertainty around fuel prices that has cemented America’s addiction to oil, and the crippling cyclical price spikes that come with it.

A gas tax has the potential for bi-partisan support. Congress is now willing to consider the substantial cost of not taking action. Environmental organizations tracking this issue believe that president-elect Obama has the political clout to achieve change on a large scale. Daren Lovaas of the National Resources Defense Counsel, who has testified before the Senate on transportation policy, states that in order for Congress to pass a $1/gallon gas tax increase, Obama must ”make the case to the American people that it is in our national interest to fundamentally reform our transportation program.”

Effectively, Americans can pay more for gas and reinvest dollars at home in the form of enhanced efficiency, better energy security, improved infrastructure and a more sustainable national economy. The alternative is to continue to export petrodollars to countries that do not have our nation’s best interests at heart. An increased gasoline tax will make energy efficiency incentives permanent, and ensure prosperity for future generations through clean-tech innovation and energy independence.

Pamela Schwab is the portfolio manager of Resolve Capital, which invests throughout the world in sustainable solutions.

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