Last month President Obama signed a two-month extension of federal highway funding into law that will continue through July. This two-month patch has now intensified the transportation funding debate, with some in Congress calling for the biggest gas tax hike in over twenty years. The federal gas tax is currently 18.4 cents per gallon but some misguided lawmakers claim a much steeper 33.4 cents per gallon is necessary to fund the Highway Trust Fund (HTF) and its endless list of non-highway related projects.
As if common knowledge that keeping more money in American’s pockets will pump more money into the economy isn’t enough, here are 5 more reasons not to raise the gas tax:
1. An increase in gas taxes will hurt middle-income Americans the most. Middle-income families make up roughly one-third of Americans. By increasing the gas tax, not only are you lessening the amount of money in their pockets, but the amount of money being pumped into the economy is being lessened too. It’s estimated that a 1 percent increase in gas prices takes $1 billion out of consumers’ pockets. That’s $1 billion dollars that could be spent on eating out, clothes, and leisure activities.
2. Raising the gas tax will likely encourage more non-highway related spending. Revenue from the tax would go to the HTF. One would think money from the HTF would be funding highways but instead, HTF funds have supported squirrel sanctuaries, landscaping, trail hikers and trolley riders. In fact spending on side projects has increased 38% since 2008 while spending on core highway projects has remained flat.
3. Raising the gas tax will not solve the real problem. The problem is that there is a funding deficit because the HTF is spending more money than they are bringing in. Currently the gas tax brings in around $34 billion annually, yet the federal government is spending roughly $50 billion each year. There is no solution in the “raise gas taxes” method. Tax proponents claim raising the tax would close the deficit and cover future, necessary funding from the HTF. However there is no guarantee for either of these things. More likely than not, this solution would only support and encourage more wasteful spending.
4. A gas tax hike will increase the price of consumer goods. The transportation of goods is primarily done via highways. Cars drive on highways and gas fuels cars. It’s a no-brainer that raising the gas tax will cost drivers more to fuel their way to deliver goods. Higher gas taxes, leading to higher gas prices will mean a higher cost on goods. This means increased financial pressure on middle to lower-income families if tax advocates get their way with this regressive increase in the gas tax.
5. Tax hikes have a negative impact on economic growth. As discussed, higher gas taxes mean higher gas prices which reduce the discretionary income of millions of Americans. Reductions in discretionary income often correspond with diminished economic growth. In fact, analysts at Goldman Sachs predict “lower gas prices could add as much as half a percentage point to GDP growth this year.”
Photo Credit: Patrick Emerson