America / Economy / Fiscal policy / Tax / Taxes / U.S. Domestic Policy

America Doesn’t Need Another Tax Hike

Hillary Clinton is not the only feature of Washington that is “dead broke”: the Highway Trust Fund is set to run out of money by late August, and members of Congress are scrambling to find ways to raise revenue. One solution, proposed by Senators Chris Murphy (D-Conn.) and Bob Corker (R-Tenn.), is to raise the gas tax. Congress should reject this proposal—the gas tax funds wasteful spending and is unfair and unreliable.

The Highway Trust Fund, created by Congress to finance the Interstate Highway System, is primarily funded by the federal gas tax of 18.4 cents per gallon of gas and 24.4 cents per gallon of diesel.

The gas tax has not changed since 1993, and the improving fuel efficiency of cars has made the gas tax a less reliable source of money for the trust fund. As a result, the fund is increasingly financed by money from the general fund. Since 2008, Congress has moved $55 billion from the general fund to the Highway Trust Fund to keep it afloat.

In late August 2014, the highway fund will once again run out of money, according to the Department of Transportation.

HTF-Cash-Flow-Summary-through-05-30-14-End-of-Month-Cash-Balances-Graph

Congress is faced with a now-familiar dilemma: should it grab more money from the general fund or seek a long-term solution?

Sens. Corker and Murphy are seeking the latter solution. They  propose to raise the federal gas tax by 12 cents and index it to inflation. The senators expect their tax increase to raise over $160 billion for the fund over the next decade.

More than just a highway fund

The Highway Trust Fund is usually defended as being necessary to build and maintain roads. Terry O’Sullivan, president of the Laborers’ International Union of North America and prominent supporter of the tax hike, even argues that insufficient transportation spending is responsible for “the lost lives, accidents, and damage to vehicles caused by poor roads and deficient and obsolete bridges.”

Contrary to what its name suggests, however, the Highway Trust Fund does not only finance highways, roads, and bridges. In fact, Congress has used the fund to squander millions of dollars on projects unrelated to roads.

According to the GAO, 17% of the highway fund, or $6 billion, was spent on mass transit projects in 2010. Transit systems—like subways, streetcars, and light rail lines—only carried 1% of American travelers in 2010. According to a Heritage Foundation study, transit systems have not reduced congestion, emissions, or gas prices as intended.

The GAO also reports that $3.1 billion of the trust fund was spent on activities like “landscaping and scenic beautification and historic preservation.” These projects are hardly necessary for America’s highway system to function.

Congress can simply avoid spending money in the Highway Trust Fund on non-road projects in order to prevent future funding shortfalls without raising taxes.

A flawed tax

The gas tax is also defended as an appropriate way to finance infrastructure because it appears to serve as a use tax. The logic behind the Highway Trust Fund is this: people who use roads consume gasoline, and since people who use roads should fund them, a gas tax would finance roads.

Contrary to what supporters claim, the gas tax is not a true use tax. People who pay the gas tax are not only paying for roads, but for transit services they do not use.

The gas tax is also an unequal tax. Drivers of cars with higher miles-per-gallon ratios, especially hybrid and electric cars, pay less than other drivers to use the same roads.

More shortfalls to come

Finally, the gas tax is not a sustainable way to finance infrastructure. The root cause of the approaching shortfall in funding is the increasing fuel efficiency of cars, which has decreased Americans’ demand for gasoline. According to the EPA, fuel efficiency increased by 22% between 2004 and 2013. As cars continue to become more fuel efficient, revenue from gas taxes will become less sufficient and highway-funding shortfalls will become more common.

Therefore, raising the gas tax is not a long-term solution to Congress’s highway funding woes. Instead, Congress should consider cutting spending unrelated to roads, replacing the gas tax, or adopting alternate proposals that may surface during this debate.

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