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Thursday, January 28, 2021

Gas Taxes May Soon Increase. Here’s Why That’s Especially Bad News for the Poor and Middle Class

Any gas tax hike will exacerbate inequality.

Image Credit: Flickr-Bruce Henschel | CC BY 2.0

I sold my car when I went to New York City in 2019, so I’m one of the rare individuals not impacted by the prices at the gas tank. But for the average American, who drives over 16,000 miles per year, the cost per gallon can quickly make a dent in their take home pay. To drive all those miles, most individuals consume 720 gallons of gasoline a year. What they may not know is they’re paying approximately $132.48 in federal gas taxes. And, according to Pete Buttigieg, that number may soon be increasing.

During a recent confirmation hearing before the Senate Commerce, Science and Transportation Committee, Buttigieg—who is President Biden’s nominee for Transportation Secretary—stated he was open to raising the federal gas tax to fund the Highway Trust Fund.

The topic was brought up by Republican Senator Rick Scott, who asked if Buttigieg might support such an increase. Buttigieg responded, “Well, I think all options need to be on the table…As you know, the gas tax has not been increased since 1993, and it’s never been pegged to inflation. And it’s one of the reasons why the current state of the Highway Trust Fund is that there’s more going out than coming in.”

The Need for Infrastructure Development

The Highway Trust Fund is how the US pays for federal government spending on highways and mass transit. In recent years the fund has become insolvent.

Since 2008, Congress has propped the fund up by transferring $140 billion of general revenues to it, but shortfalls are still expected by 2021. And it is projected to get worse from there. According to the Congressional Budget Office, 2030 projections show that the fund’s commitments will exceed its revenues by $134 billion for the highway fund and $54 billion for the mass transit side.

This could spell disaster for the numerous projects currently underway and be a significant roadblock in the administration’s infrastructure goals—which are ambitious. Biden is expected to unveil a $2 trillion package focused on clean energy provisions, expanding 5G, high speed light rail, and bridge and road repairs.

Infrastructure is largely popular among Americans of all political persuasions, and America has fallen behind in development compared to other Western countries. Americans pay a large percentage of their income in taxes, and in exchange, they expect decent roads, accessible transportation options, reliable airports, and connectivity.

It is estimated that traffic congestion alone costs the US economy $120 billion per year. In New York City, 17,000 hours of lost worker time were incurred in 2017 alone due to mass transit delays. And as the nation looks to the implementation of autonomous vehicles, transportation experts say our roads are nowhere near prepared. All of that to say, there is a real and pressing need for infrastructure development.

The Gas Tax is Regressive

The question is not whether we need better transportation infrastructure, it’s how to pay for it. And an increase to the federal gas tax should be out of the question.

Gas taxes (both those imposed federally or at the state level) are regressive. Regressive tax structures are those that, when applied uniformly, take a larger percentage of income from low earners than high earners. A progressive tax, in contrast, is one that takes a larger percentage of income from high earners than others.

The liberal-leaning Massachusetts Budget and Policy Center reports that gas taxes hit low and moderate income earners the hardest, especially those who live in rural areas and may drive long-distances for basic supplies.

The impact of this tax on the poor and middle income earners is not negligible. For the vast majority of Americans, transportation is an essential good that ensures they can get to work, take their kids to school, go to the doctor, or convene with their bodies of faith.

The average American spends roughly 13 percent of their income on transportation, but that cost is not consistent across income brackets. In fact, the lowest earners spend the largest portion of their wages on transportation, and that portion tends to decrease as a person moves up in earnings. A 2016 study found, for example, that the lowest earning 20 percent of the population earned an average of $11,933 and spent an average of $3,497 (29 percent) on transportation costs.

It is undeniable that any gas tax hike would exacerbate inequality. Moreover, the surreptitious method of the tax is highly problematic.

Albert Camus, the French philosopher and journalist once said, “It is no more immoral to directly rob citizens than to slip indirect taxes into the price of goods that they cannot do without.”

The gas tax is a perfect example of such a case.

Better Solutions

Fortunately, there are other options available to fund our infrastructure needs besides a gas tax hike. Buttigieg noted as much in his testimony. “In the long term, we need to bear in mind also that as vehicles become more efficient and as we pursue electrification, sooner or later there will be questions about whether the gas tax can be effective at all.”

One such option would be for the federal government to cut spending elsewhere, and boy are there plenty of places to do that. At the end of 2020, Senator Rand Paul released his annual “Festivus Report” where he found over $54 billion in government waste. And one need look no further than last year’s stimulus package, chock full of crony special favors and pork, for examples of how the federal government blows our resources.

It is undeniable that any gas tax hike would exacerbate inequality.

Another option would be to simply stop crowding out private enterprise’s capacity to improve our transportation infrastructure. Companies like Uber, Tesla, and The Boring Company are lightyears ahead of the federal government. As FEE contributor Matthew Boyer points out, “Those companies are made up of researchers, engineers, and tech titans – not bureaucrats. These folks are at the heart of the problems and it’s their job to find a solution. They’re the experts in their fields. If you wouldn’t trust a politician to be your doctor, why would you trust them to be your engineer?” There’s no question that the free market could deliver better, faster products, and usually at a cheaper price, than the federal government.

We know that when left to their own devices, politicians will always seek to enrich themselves and their friends. Throwing more money at a problem is not a solution. Instead we need to look for ways to better appropriate the revenues our government collects to projects that ultimately serve the general public.

As Biden came into power, many on the left were overjoyed and felt assured that the new administration would dedicate itself to eradicating inequality, racial injustice, and poverty. But Buttigieg’s statements are proof that government policies will always exacerbate, rather than alleviate inequality, unless those policies are focused on spreading free market ideals that remove the brunt of government from the backs of Americans. Otherwise, some government policies will always harm some groups of people more than others, and quite frequently those groups are the very people the government purports to help.

  • Hannah Cox is the former Content Manager and Brand Ambassador for the Foundation for Economic Education.