Counselor Commentary: Don’t Raise The Gas Tax

It’s become popular of late for columnists, analysts and even some select politicians to suggest the U.S. government increase the federal gas tax. The thinking is simple: a hike of maybe 15 or 20 cents per gallon would help offset the cost of building and repairing the nation’s highways. And, after all, the tax will be levied against those who actually drive on roads, making it a fair way to fund necessary infrastructure. Plus, considering gas prices have been dropping on average this summer, who would notice a little extra tax anyway?

Those who favor this more-tax view may be well-intentioned, but their logic is faulty and even short-sighted. There are several reasons why.

First, the U.S. economy is driven by consumer spending – and the latest figures show Americans are holding back. June data – the most recent available – help make the case that slow wage growth is undercutting expansion, as personal spending rose a paltry 0.2%. That was the smallest gain since February. It would be a mistake to raise a tax that dips into disposable incomes at a time when consumer sentiment is already uneven and interest rates could finally be headed higher. Cheaper gas is a psychological win for Americans.

This apparent win, you may have noticed, hasn’t been as decisive as one would think, though. As oil plunges toward $40 a barrel, you’d expect gas prices to fall under $2 per gallon. Why hasn’t this happened? One reason is a growing list of states are upping gas taxes within their borders. Welcome to Iowa, where the Hawkeye State’s legislature recently hiked the gas tax by a dime per gallon. Greetings from Georgia, where lawmakers not only raised the gas tax by 6 cents per gallon, but also increased some vehicle fees. Then there’s Utah, which passed a nickel gas tax jump, along with a 12% alternative levy on the wholesale price of gas that’s triggered at $2.45. And let’s be real, in places like over-taxed California and New York, $3 per gallon gas is a bargain. Imagine how a 20-cent federal gas tax hike would play in any of these states. Let’s end the suspense: not well.

A little foresight highlights a third problem with raising the gas tax: studies show fewer Americans are driving, and when they drive, they’re going shorter distances. Per capita driving (a number that accounts for population growth) has declined for nearly a decade and now stands at 9% below the 2005 peak, according to researchers. Sure, there’s evidence more people are riding bikes and trains, but one of the real triggers of less driving is telecommuting. The work-at-home trend is not going anywhere and lawmakers who think they can bridge a $160 billion funding shortfall by collecting more at the pump are stuck in the last century.  

Fortunately to date – in a rare moment of agreement – both President Obama and Congressional leaders have opposed raising the federal gas tax. Let’s hope for the economy’s sake that common sense prevails.