Opportunity Missed | Business Facilities - Area Economic Development, Site Selection & Workforce Solutions

There was bold talk about tax reform in President Obama's speech, but not a word about the most important tax.


https://businessfacilities.com/2015/01/infrastructure/
There was bold talk about tax reform in President Obama's speech, but not a word about the most important tax.
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Opportunity Missed

Opportunity Missed | Business Facilities - Area Economic Development, Site Selection & Workforce Solutions

web1_Gas-prices-below-170-DSC_1616xwebIn his State of the Union address, President Obama sketched a bold vision to expand opportunity for all Americans by focusing on “middle-class economics.” The centerpiece of this vision was his call for lower taxes on middle-class families to put “thousands of dollars back into their pockets” every year.

Before he threw down the gauntlet on class-conscious tax reform and income inequality, the president took a moment to note that the recent collapse of the price of gasoline will put about $700 into those middle-class pockets this year. With prices at the pump heading for levels last seen when everybody was imitating John Travolta under those stupid sparkling disco balls, hailing $1.60/gallon gas is a guaranteed applause line.

But it says here President Obama really needed to step on this applause last night by following it with an urgent proposal guaranteed to produce coast-to-coast grumbles and more than a few Bronx cheers. Unfortunately, the president didn’t say a word about raising the federal tax on gasoline.

Yes, Obama tossed off a line about applying some new revenue generated by tax reform–read increasing taxes on the richest Americans–to infrastructure improvements. But, by failing to specifically call for a hike in the gas tax, the president may have missed a once-in-a-generation opportunity to make a long-overdue adjustment that could substantially address one of the nation’s most critical needs.

We’ve devoted a lot of verbiage in this space to America’s crumbling infrastructure. For more than three decades, our roads, bridges and dams–the envy of the world when they were built in the last century–have degraded to a condition you would expect to find in an impoverished third-world country. The American Society of Civil Engineers, which issues an annual report card on the state of our infrastructure, has given the U.S. an overall grade of D+. This is the grade kids get when their teachers take pity on them and want to spare them the humiliation of outright failure.

Even worse, ASCE declared the U.S. needs to spend at least $2 trillion on infrastructure upgrades by the end of this decade in order to remain competitive as an advanced industrial nation. That’s trillion with a T and a deadline that’ll arrive in five years, folks.

A big chunk of the federal gas tax is supposed to be funneled into the Highway Trust Fund, which is the primary revenue spigot for maintaining and upgrading our infrastructure. The gas tax, currently set at 18.4 cents/gallon, hasn’t been raised since 1993.

When it was created by Congress in the midst of the Great Depression in 1932 and set at 1.5 cents/gallon, the sole purpose of the gas tax was to narrow the huge federal deficit created by the worst financial collapse in history. In 1951, the tax was raised to 2 cents to offset the cost of the Korean War.

The first large-scale use of the gas tax to fund infrastructure improvements came in 1956, when Congress created the Highway Trust Fund and raised the tax to 3 cents a gallon, stipulating that 100 percent of the revenue be used to build the interstate highway system. In 1959, the tax went up to 4 cents–about what it cost then to buy a postage stamp–where it remained for the 23 years that followed. In 1983, Congress added a nickel, requiring that at least a penny of the 9 cent/gallon levy be dedicated to mass transit projects. In 1990, another nickel was added, with half of the increase dedicated to highway projects and the other 2.5 cents aimed at deficit reduction.

Finally, in 1993, another 4.3 cents was tacked on, but almost all of this new revenue once again was dedicated to deficit reduction (0.1 cents was used to create a trust fund to repair leaking gasoline storage tanks). In 1997, Congress switched gears and mandated that 100 percent of the federal gas tax go to the Highway Trust Fund, but failed to raise the levy, which has remained at 18.4 cents/gallon now for 22 years and counting. Our gas taxes are the lowest by far of any developed nation, despite the fact that the U.S. is one of the biggest consumers of gasoline. Whatever political will there was to increase the gas tax during the past two decades was crushed by the inexorable rise in the price of gasoline, which topped out at a nationwide average of more than $4/gallon in 2008.

Which brings us to today’s golden opportunity. Surging U.S. oil production has prompted a retaliatory strike from Saudi Arabia: the Kingdom recently announced it will maintain current levels of production despite oversupply that’s pulled the rug out from under $100/barrel oil prices, sending them to their lowest level since the disco era. As we reported last week, industry experts predict the oil price will bottom out at about $30/barrel later this year, translating to gasoline prices as low as $1.25/gallon.

If ever there was a time for a relatively painless increase in the gas tax, this is it. If you think a gas tax hike won’t do much for our infrastructure, consider this: every penny added to the tax raises about $3 billion annually for infrastructure repair. A modest 10 cent/gallon hike would bring in at least $300 billion in new revenue over the next 10 years. Raising the gas tax alone won’t solve our infrastructure woes, but it will provide the essential down-payment we need to move this task to the top of the list of national priorities.

It may take a couple of years for the oil price war between the U.S. and Saudi Arabia to play itself out. While the oil giants are duking it out, the highest-cost producers will be knocked out the ring. Then, as sure as the sun rises in the East, the global price of oil will start going up again, probably stabilizing and holding long-term in the $60/barrel range.

There’s no better time to act on the federal gas tax than right now–and this moment may not return again in our lifetimes. Here’s our opening bid: the federal gas tax should be raised to at least 50 cents/gallon. Feel free to see us and raise us a buck and we’ll gladly push the rest of our chips into the middle of the table.

Let’s get this done before whoever replaces the New England Patriots in the Super Bowl catches a fully inflated ball in the opening kickoff.

 

 

 

 

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1 COMMENT

  1. I agree with the idea of of a gas tax increase, but think a 50 cent increase is a bit much. However, I think a 10 or 20 cent increase should happen.

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