When President Trump proposed a $1.7 trillion investment in America’s infrastructure in his 2018 State of the Union address, many people applauded the action as critically needed to improve our highways, bridges, water systems and airports – and then questions began being asked on how to fund it. The Trump administration has asked Congress for $200 billion in federal spending and has suggested that more than $1 trillion would need to come from state, local and private financing. In addition to that money, the administration has also floated the idea of a gasoline tax increase from the current level of 18.4 cents per gallon to 43.4 cents – a 25 cent increase on every gallon purchased. That suggestion is now the subject of much debate in the halls of Congress and in the subcommittees working on the national budget, and the dividing lines are not necessarily where you would think they might be.
The US Chamber of Commerce estimates the tax increase would generate about $394 billion which more than covers the federal government’s $200 billion funding level. The Chamber suggests that infrastructure improvements are critical for American businesses.
The American Trucking Association is also in favor of the tax. The ATA suggests that no other funding alternative is as viable and that repairing roads and bridges is a top priority for fleets currently suffering equipment damage and delayed travel times due to road problems.
In their latest earnings conference calls, financial analysts asked the leaders of GM, Ford and Chrysler about their stance on the tax and all three were generally pro tax increase. GM’s CEO Mary Bara noted that a gas tax could generate substantial funding, but would need to combine with both municipal and state funding. Jim Hackett, CEO of Ford, considers the tax hike a positive concept that needs to be applied not only to physical infrastructure but also to a digital future that will enable the Intelligent Transportation System. FCA’s Sergio Marchionne said “Chrysler would absolutely support the increase of the tax to gain better roads and bridges.”
On the other side of the issue are organizations like Americans for Prosperity (AFP) that suggest a gas tax increase is simply taking money out of a taxpayer’s left pocket after the federal income tax decrease puts money in their right pocket. The AFP also notes that a gasoline tax can create price inflation in all kinds of physical goods and services that are delivered using vehicle transportation, which can increase the cost of living for people who can least afford it.
The split between Democrats and Republicans in Washington DC isn’t what you think it might be, either. While the majority of Democrats are pro-tax increases, Senator Charles Schumer (D-NY) has spoken out against the tax because he believes it hits lower income people harder than others. There are Republicans on both sides of the issue, too. Senator John Barrasso, who serves on both the Energy and Natural Resources Committee and the Environment and Public Works Committee, is against the tax increase, citing his concerns that not all of the money from the taxes will actually go towards fixing roads and bridges. Representative Bill Shuster, chairman of the House Transportation and Infrastructure Committee, on the other hand, is strongly in favor of the tax because he sees it as one of the fairer approaches of all funding alternatives.
As this debate goes on, the auto aftermarket is in a predicament. Service shops make a lot of money fixing suspension systems, broken wheels and split tires damaged by poorly maintained road surfaces. In addition, the aftermarket can be harmed if vehicle-miles-traveled (VMT) go down due to higher prices at the pump, so the aftermarket has many reasons to oppose the tax increase – but it is kind of tough to be “pro-damage” and against highway improvements, so you rarely hear about the auto aftermarket’s stance on the gas tax.
And finally, one additional foible in the gas tax idea – the move to electric drive vehicles and the general increase in vehicle fuel economy to meet federally mandated Corporate Average Fuel Economy (CAFE) standards will result in less gasoline and diesel fuel being consumed in the future, which will reduce the amount of infrastructure funding. That has states like Washington experimenting with a “pay as you drive” mileage tax. The state-implemented test in 2017 suggests that a mileage tax could actually generate more than a gasoline tax, but state residents are complaining about the possible “ulterior motives” that could develop with the tracking devices being used in the program. State officials now know the complete history of a resident’s driving, including every time they exceed the speed limit or slow roll through a stop sign and every place they have been during the tracking period. That’s not going over well with some residents.
The debate on highway funding will go on – it has since the first penny-a-gallon tax was levied in 1931. That penny grew to 18.4 cents a gallon by 1993 but has stayed there since. Unfortunately, that tax level barely covers the cost of maintaining federally controlled roads let alone improving them, and as bridges continue to collapse the Highway Trust Fund is now disbursing more funds than it takes in from the 18.4 cents levy. Also, the gas tax handles only the federal roads. Your state road maintenance is funded by state gas taxes, which in some states are two or even three times the 18.4 cents federal level. According to the US Energy Information Administration (EIA), the average state gas tax is 28.3 cents per gallon in 2018.
Your author lives in Michigan where the state gas tax is 18.7 cents per gallon. Given the truly horrible condition of many of the state’s roads, it is difficult to understand where the money goes. A quick Internet search sheds some light – Michigan is 33rd out of 50 states in investment per lane mile, 47th in investment per vehicle-mile traveled and 50th out of 50 in highway investment per capita. That explains a lot!
