Posts tagged ‘gas tax’

Highway Bait And Switch

Kevin Drum and Ezra Klein both complain that Congress is letting America's highways fall apart by not raising the gasoline tax.  They complain that current gas taxes are no longer high enough to cover costs, as the Federal highway trust fund is empty.  Apparently, Congress and the President were always blithely happy to raise the gas tax to whatever it needed to be to cover costs, and now this current Congress is departing from the historic norm:

We used to have a straightforward way to fund infrastructure in this country: the federal gas tax. In 1956, President Dwight Eisenhower raised the tax from 1.5 cents a gallon to 3 cents to help pay for the creation of the interstate highway system. In 1959, he increased it from 3 cents to 4 cents. In 1982, President Ronald Reagan raised the gas tax to 9 cents. In 1990, President George H.W. Bush raised it to 14 cents, with half of the increase going to reduce the deficit. In 1993, President Bill Clinton raised it to 18.4 cents.

In other words, from 1956 to 1993, there was a bipartisan consensus on the federal gasoline tax: Both parties agreed that it occasionally needed to be raised in order to help pay for the nation’s infrastructure. But since 2000, there has been a bipartisan consensus against raising the federal gasoline tax.

But here is what happened since 1993:  Roughly a third of highway taxes are diverted to local mass transit and other oddball non-highway projects.  Simply devoting all the highway trust fund to, you know, highways would add an effective 6-7 cents to the gas tax money without actually raising the tax.

Here is what is going on:  The Left loves mass transit projects, particularly urban rail.  Of all government transportation projects, these have by far the highest cost per passenger mile of anything we do, so diverting money to these projects reduces the bang for the buck but the Left loves these projects for social engineering reasons I will discuss in a post soon.

The Left knows that these transit projects will not stand up well in the appropriations process.  Kansas taxpayers are not going to be happy about paying for another couple miles of the LA subway system.  They will ask, rightly, why local urbanites can't pay for their own damn transit projects if these projects are so great.  But taxpayers generally support tax hikes for highways. So what does a politician on a transit mission do?  He sells the gas tax to the public on it being dedicated to highways.  Then he switches the money away from highways to transit.  This leaves highways falling apart.  So he can again go to taxpayers asking for money, ostensibly for highways, but of which a good portion will eventually be siphoned off to transit (and squirrel bridges and whatever).  Repeat.

In effect, calls for raising the gas tax are NOT to repair highways.  This is a bait and switch.  Gas taxes are sufficiently high enough to fully fund highway work if it was all applied to highway work.  Proposed increased in gas taxes are needed to pay for the continuing diversion of highway funds to egregiously expensive transit projects.  Congress is right to stop this shell game.

It's Supposed to be Painful

Megan McArdle points out the real problem that carbon taxes and other CO2-abatement approaches have -- they only really work if it they are painful.  I mean, the whole point is not supposed to be to raise government revenue or just arbitrarily raise prices.  The whole point is to change behaviors, and the most powerful tool for behavior change is price changes.

Global warming activists are talking about 80% CO2 reductions.  This is an enormous number, especially since the relative cut has to be even higher to account for future growth, as reductions are generally pegged to current (or as in Kyoto, past) CO2 emissions levels.

A 40-cent gas tax is not going to do it.  Or, looking at how much behaviors changed when gas prices recently went up to $4, a $2.00 gas tax is not going to do it.  The Europeans have $6+ gas taxes and that is not enough to reach the levels activists want for this country.   It is likely going to take $10+ gas to even start to get the reductions in use and the shifts to much more expensive carbon-less technologies that would be required to hit 80% type goals.

All this means that we are NEVER going to have a carbon tax that really reflects the necessary rates to hit the emissions targets Obama and the alarmists claim to be committed to.  That is why we will get backdoor taxes that try to hide the tax and shift the blame away from Congress.    But none of these schemes, including cap and trade, will have any meaningful impact unless they lead to consumer price increases that change behaviors of the end users**.  But these approaches are preferable to lawmakers, as they somewhat disguise the relationship between legislation and prices, and give them some ability to blame private companies for the price increase, even where these increases are the inevitable result of carbon caps.

Postscript: This is further complicated because the major technologies the government is attempting to subsidize as part of meeting these goals are virtually useless.  Two in the transportation sector - ethanol and electric vehicles - are of questionable merit.  Ethanol has about zero efficacy in reducing Co2, and may actually increase it (but it is essential if one wants to win the Iowa caucuses).  Electric vehicles have some potential, but their impact is dependent on how electricity is generated.  Based on the current mix, shifts to electric vehicles just shift emissions from one place to another without much net reduction.  If someone were to propose a massive nuclear and electric vehicle program, they might convince me they were on to something.

**PS#2: I suppose you could reach these goals without fuel price increases.   Two alternatives:

  • Mandate certain transportation and other technology solutions, as well as certain limits (e.g. maximum house size, maximum number of TV's, etc).  This still has cost, though, in terms of enormous losses in personal liberty as well as likely enforced higher costs of major purchases, like cars.  So this is still likely a price increase, it just shows up in a different place.  Also, this may well not work -- there is very good evidence that without price changes in fuel, consumers react to higher MPG in their cars by driving more, thus sibstantially dilluting the carbon effect.
  • Enforce carbon limits combined with price caps on fuel and electricity.  This would be effective, probably, but of course would result in massive shortages of gas and electricity.  The rationing challenge would be enormous.

Demagoguery

Hillary has jumped on the gas tax holiday along with John McCain.   Kevin Drum calls it pure demagoguery (he probably wouldn't have been so blunt about Hillary, but since he already derided McCain for the idea, he has the good grace to apply the same criticisms to Hillary:

I'd say there's approximately a zero percent chance that Hillary
Clinton or John McCain actually believe this is good policy. It would
increase oil company profits, it would make hardly a dent in the price
of gasoline, it would encourage more summertime driving, and it would
deprive states of money for transit projects. Their staff economists
know this perfectly well, and so do they.

But they don't care. It's a way to engage in some good, healthy
demagoguery, and if there's anything that the past couple of months
have reinforced, it's the notion that demagoguery sells. Boy does it
sell.

I tend to agree with Drum.  The gas tax, at least when applied to its original purpose of funding highways and roads, is one of the better taxes out there, doing a pretty good job of matching the costs of roads to the users of the roads.  However, I did make this point in Drum's comment section:

I am glad you see that an 18.4 cent gas price reduction is small compared to the total price and proposing such a reduction by government fiat is pure demagoguery. 

I would like to point out that most oil companies have a profit on a wholesale gallon of gas that is also about 18-20 cents.  The reason they make so much money is that they sell a lot of gallons of gas (plus many other petroleum products).  So is it similarly pure demagoguery to blame oil company profits for the price of gas, or to suggest government schemes (e.g. windfall profits tax) to reduce these profits?

By the way, Hillary is particularly hypocritical on this, because she has adopted the 80 by 50 CO2 target (80% reduction by 2050).  To meet this target, which I think would be an economic disaster, is not going to require an 18.4 cent gas tax, but something like a $10 a gallon gas tax, or more.  Since she has adopted her 80 by 50 target, her correct answer on gas taxes should not be to propose a holiday, but to say "suck it up, because taxes are going to go a hell of a lot higher."  McCain, who has also adopted a CO2 target, though a less stringent one, is in the same boat.

Update:  OK, the $10 per gallon tax is probably gross under-estimated.  The number is likely to have to be much higher than that, given that Europeans are already paying nearly $10 a gallon and are not even in the ballpark of these CO2 targets.

Cost of gasoline
(U.S. Dollars per Gallon)
Date___     Belgium  France  Germany  Italy  Netherlands  UK  _ US
4/20/98     3.43___  3.44__  3.25___  3.48_  3.56_______ 4.04  1.21
4/21/08     8.62___  8.34__  8.58___  8.32_  9.51_______ 8.17  3.73

HT:  Hall of Record

Dark Days for Free Speech

Nearly every day brings new evidence of what a threat to free speech campaign finance "reform" laws have become.  I found this bit from Brian Anderson very depressing, but not surprising:

Consider what's going on in Washington State as an early warning.
Early in 2005, the Democrat-controlled legislature passed"”and
Democratic governor Christine Gregoire signed"”a bill boosting the
state's gasoline tax a whopping 9.5 cents per gallon over the next four
years, supposedly to fund transportation projects. Thinking that their
taxes were already plenty high... some citizens organized an initiative campaign,
as Washington law allows, to junk the new levy: No New Gas Tax.

Two popular conservative talk radio hosts, Kirby Wilbur and John
Carlson, explained why the gas tax was bad news and urged listeners to
sign the 225,000 petitions necessary to get the rollback initiative on
the November ballot, though they played no official role in the
campaign and regularly featured on their shows defenders as well as
opponents of the tax hike. With the hosts' help, the petition drive got
almost twice the needed signatures, but the ballot initiative, strongly
opposed by labor unions, the state's liberal media, environmental
groups, and other powerful interests, narrowly lost.

Meantime, however, a group of pro-tax politicians sued No New Gas
Tax, arguing that Wilbur's and Carlson's on-air commentaries were
"in-kind contributions" and that the anti-tax campaign had failed to
report them to the proper state authorities. The suit sought to stop
NNGT from accepting any more of these "contributions" until it
disclosed their worth"”though how the initiative's organizers could
control media discussions or calculate their monetary value remained
unclear. The complaint also socked NNGT with civil penalties,
attorneys' fees and costs, and other damages...

The real target of the suit was clearly Wilbur and Carlson, or, more
accurately, their corporate employer, Fisher Communications. If NNGT received the "contributions," that meant Fisher had sent
them by broadcasting Wilbur's and Carlson's support for the initiative.
Washington law limits contributions in the last three weeks of a
political campaign to $5,000. Depending on how one measured the dollar
worth of on-air "contributions," Fisher could thus face big fines and
criminal sanctions if it let Wilbur and Carlson keep talking about the
gas tax. "Thankfully, Fisher assured us that we could keep
talking about the subject on the air, and we did," Wilbur says. The
judge ruled in favor of the pro-tax pols, though he finessed the $5,000
limitation problem by ruling only on the "contributions" that occurred
prior to the campaign's last three weeks.

I find this offensive.  And expect similar "in-kind" donation logic to be coming to a blog near you.  And while Democrats may short-sightedly cheer as long as this logic is applied against conservative talk radio, this "in-kind" logic is a Pandora's Box that will be very hard to close.  For example, lets say my wife's reading club organizes 200 women to go out to a 3-hour rally to support Hillary Clinton.  In doing so, the club just mobilized 600 "man"-hours for Ms. Clinton, which at $10 an hour, which is a low value for a professional person's time, is worth $6000.  Have they violated the law?  Or, lets say a lawyer who normally bills $300 an hour spends all day Saturday and Sunday marching in a rally for George Bush.  Is he over the limit?

We are in the absolutely terrifying and historically unprecedented position of having had Congress pass a law that no citizen (except a few media people and a few government licensed political groups) can criticize a member of Congress by name within 60 days of an election.  And the Supreme Court signed off on this travesty!

"Sin" Taxes Put Perverse Incentives on Government

The government has found over time that it is able to sell higher taxes to the voters on certain items if they can portray those items as representing some socially unwanted behavior. These are often called "sin" taxes. The justification for the tax in its beginning is as much about behavior control as revenue generation.  Taxes on cigarettes, alcoholic beverages and even gasoline and plastic grocery bags have all been justified in part by the logic that higher taxes will reduce consumption.

However, a funny thing happens on the way to the treasury.  Over time, government becomes dependent on the revenue from these taxes.  The government begins to suffer when the taxes have their original effect -- ie reducing consumption -- because then tax revenues drop.  The government ultimately finds itself in the odd position of resisting consumption drops or restructuring the tax so it no longer incentivizes reduced consumption so that it can protect its tax revenue collections.

Cigarettes are a great example.  In this article, via overlawyered, from Forbes (simple registration required):

Big tobacco was supposed to come under harsh punishment for decades of deception when it acceded to a tort settlement seven years ago. Philip Morris, R.J.Reynolds, Lorillard and Brown & Williamson agreed to pay 46 states $206 billion over 25 years. This was their punishment for burying evidence of cigarettes' health risks.

But the much-maligned tobacco giants have subtly and shrewdly turned their penance into a windfall. Using that tort settlement, the big brands have hampered tiny cut-rate rivals and raised prices with near impunity. Since the case was settled, the big four have nearly doubled wholesale cigarette prices from a national average of $1.25 a pack (not counting excise taxes) in 1998 to $2.10 now. And they have a potent partner in this scheme: state governments, which have become addicted to tort-settlement payments, now running at $6 billion a year. A key feature of the Big Tobacco-and-state-government cartel: rules that levy tort-settlement costs on upstart cigarette companies, companies that were not even in existence when the tort was being committed.

So, a tax that was originally meant to punish supposed past wrong doing by cigarette makers is causing problems because it was... actually doing what it was supposed to by hurting those companies.  Lots of good stuff, I encourage you to read it all - basically state governments have gone from opponents of the cigarette companies to their partners.  Antarctic Liberation Front opponent Eliot Spitzer comes in for particular attention.

A second example I discussed comes from San Francisco, where a tax aimed at discouraging use of plastic garbage bags was modified so that it collected more money, but no longer discouraged use of plastic.

A third example comes to us via Vodka Pundit, which points out that California now is considering supplementing their gas tax with a per-vehicle-mile tax.  The gas tax was always effectively a per-vehicle-mile tax, since the amount of gas you used was proportional to the number of miles you drove.  And, of course, the gas tax is far easier to manage than a per-vehicle-mile tax (yes, coming soon, its the odometer auditors!)

So why a need for the new tax?  Well, it turns out that Californians are buying a lot of very fuel-efficient cars, including new hybrids, which reduces gas consumption and thus taxes.  Of course, this is EXACTLY what most people hope the gas tax is doing - helping to conserve gasoline and reduce emissions and incentivizing people to purchase efficient vehicles.  Now California is considering substituting a new tax that collects more money but provides no conservation incentives.

UPDATE:  Welcome Carnival of the Vanities!  If you're looking to kill more time at work today, check out my rant on the recent New London eminent domain case in front of the Supreme Court titled "all your base are belong to us".