Why Increasing the Federal Gasoline Tax is Bad

Aside from the fact that Americans are finally catching a break on their expenses in an economy with far too few decent jobs, stagnant wages, more businesses shutting down than started, and increasing food, housing, and tax expenses, there are many other reasons why the federal gas tax should not be increased.

Some say that the highway infrastructure is decaying and more federal money is needed to repair it.  This is actually a false claim.  The Federal Highway Administration says otherwise.  According to it, the condition, safety, and quality of the US road system has been steadily improving.  A 2009 study by the Federal Reserve Bank of Chicago concluded that for twenty years the road system had improved.  It even said that the median road was fully suited for higher speed transportation than the law allowed.

The federal government certainly loves having control of the dispensing of the income from the federal gas tax.  It used to be a favorite means of funding earmarks used as demonstrations of a Congressman's or Senator's ability to send money to his home district or state.  The money was frequently wasted or used inefficiently.  The "bridge to nowhere" was one famous example, but was really only one of many such abuses of the taxpayers.

It has been estimated that increased costs in highway projects due to the federal requirements of Davis-Bacon laws mandating high wages, due to an executive order of Obama diverting many projects to labor union workers while minimizing competitive bidding, greatly increased environmental and other federal requirements, and the siphoning off of taxes to pay for the federal bureaucracy, that 30% of the federal gas tax revenues are wasted.

It is worse than that.  Much additional federal gas tax revenue is still diverted to other transportation policies very much in vogue among Progressive Elitists.  These diversions are the main reason that so many Progressive Elitists want to increase the federal gas tax.  They divert large sums to rail projects, almost all of which lose money in operation.  They also divert money to bike and walking paths, which may make it easier for some Elitists to get their exercise, but which is hardly a purpose consistent with the U.S. Constitution.  Neither for that matter are the money-losing passenger rail and bus systems they like to fund in major metropolitan areas, or in some cases in low density areas as is the case in the massive cost and massive operational loss rapid rail system being built in California.

At least the Interstate Highway system has a cover under the Constitution as a system of "post roads," which were meant to tie a far-flung country together with communications and make it more defensible in a period of our history when that was needed.  Since 2008, spending on the actual road system has not increased.  The increase in spending of the federal gas and diesel taxes has fueled the 38% increase in funding of non-highway projects adored by the anti-road Progressive Elitists.  The present federal fuel taxes are actually adequate to fund road construction and repair for the next 10 years.

Republicans sometimes like the federal gas tax because it is a use tax, while Democrats see it as a sin tax to discourage fossil fuel use consistent with their failed hypothesis of catastrophic man-made global warming.  The 16% of the federal gas tax revenues spent on non-highway purposes are especially unrelated to national needs and should be funded and controlled by local governments, if they should be funded at all.  There is no reason rural people with longer driving distances between points of interest should be funding commuter systems in New York City, where no one owns a car and only pays the federal gas tax indirectly when they take a cab.  There is no reason that rich and local environment-ignorant New Yorkers should be deciding what the environmental requirements of highway projects are in Oklahoma or North Dakota.

And why is it that the fraction of the federal gas tax collected in each state that is returned to projects in that state has varied hugely from state to state over the life of the federal tax?  Some states have been huge winners and some huge losers, with the losing states outnumbering the winning states.  Generally, Pengyu Zhu of Boise State University and Jeffery Brown of Florida State University found in a 2013 paper that the federal fuel tax redistributed money from poorer to wealthier states and from higher transportation need states to lower transportation need states.  The tax distribution is biased against those states with more miles of highway and more use of that highway.

When a project is largely funded by federal money, state and local governments have little incentive to see that the money is spent wisely.  This seemingly free money from the federal government induces the states and local governments to make expensive lobbying efforts to obtain it and adds to our huge special interests problem in government.

The idea that the federal government should increase its control of the U.S. road system and other transportation systems by increasing the federal gas tax, Charles Krauthammer and Senator James Inhofe notwithstanding, is a very bad idea.  Georgia Republican Tom Graves introduced a better idea, the Transportation Empowerment Act, in the House of Representatives in November of 2013 to greatly reduce federal involvement and its highly inefficient meddling in local transportation matters with a greatly reduced federal gas tax.  Senator Mike Lee co-sponsored the bill in the Senate.

Alan Reynolds: Get Ready for the Oil-Price Drop

Alan Reynolds, senior fellow of the Cato Institute, wrote an article called "Get Ready for the Oil-Price Drop" which is very interesting reading. It was published in the New York Post on 6 June 2008. He points out that the United States is using no more oil now than it did in 2004, which one would hardly guess given all the accusations that Americans addiction to oil is causing the high oil prices or is causing the imminent death of the planet. In addition, he points out that passenger cars are not the primary user of oil, so politicians and socialists trying to make us feel guilty about driving to work are giving evidence that they do not understand how oil is used.

Only 44% of oil becomes gasoline and much of that is used by industry, not just individuals who are being enjoined to walk a mile to a bus stop and wait 15 minutes for it to show up, if it does, then switch to a second bus, then get on a Metro train, and then walk the remaining several blocks to their place of work. Two-thirds of US petroleum use is for transportation, but half of it fuels commercial trucks, trains, airplanes, and ships. Most crude oil is used to produce diesel fuel, heavy oil for industry, aviation fuel, asphalt, home heating oil, propane, wax, plastics, detergents, drugs, and fabrics.

Since such a large fraction of oil is used for industrial production and the delivery of goods and services, the price of oil is very cyclical. That is, its price increases with economic activity and falls when economic activity slackens. Historically, the price of oil fell 44% in the Nov 2000 to Nov 2001 recession, 48% from Oct 1990 to Jan 1992, and 71% from July 1980 to July 1986. Because fuel costs have a huge impact on business profit and loss, when the price of fuel goes up greatly, then production will decrease shortly afterward. In nine out of 10 postwar recessions, the recession began shortly after the price of oil rose greatly. This time around, US manufacturing was proven very resistant to production decreases due to the high price of oil and has been one of the reasons for the sustained oil price increases.

In the US and Britain, industrial production is nearly flat, being only 0.2% higher than it was a year ago. But, in many other countries, production dropped over that period. Japan is down 0.7%, Austria 1.1%, Italy and Denmark 2.5%, Canada 2.9%, Greece 5.4%, Singapore 5.7%, and Spain 13.3%. In April, industrial production in India and China fell. This worldwide production decrease is going to bring down the cost of oil substantially.

Well, maybe it was a good thing it has recently been high. It made it impossible for the Democrats and some very foolish Republican allies to pass the incredibly wrongheaded Warner-Lieberman Energy Security Act which was to tax our use of fuels heavily and grab control of much of our lives. Of course, I also like seeing the US proving to be one of the countries most resistant to industrial output decreases in the world. Those of us who work hard to make the US so productive have much to be proud of. We also give the socialists and the earth goddess worshipers so much to complain about with our use of resources! Let us continue to give them much to be unhappy and bitter about! Heck, they would not know what to do with themselves if they could not complain about those of us who create and produce. They need us, as do all the human parasites. But why should we allow these angry leaches to suck our blood? Why don't we use this high gasoline price episode to keep up a drumbeat campaign for increased oil production in the US and in Iraq?