10 Reasons Why Suspending the Federal Gas Tax Would be Bad for the Economy and Poor Public Policy

Staff

On April 15, Senator John McCain called for a suspension of the federal highway user fees – the 18.4 cents-per-gallon gas tax and the 24.4-cents-per-gallon diesel tax – from Memorial Day to Labor Day as an "immediate economic stimulus." In fact, this proposal would have severe negative economic impacts, according to American Road and Transportation Builders Association (ARTBA).

It is important to understand the federal motor fuels excises are not "general taxes." Since 1956, they have been dedicated, by law, to the federal Highway Trust Fund and can only be used for transportation-related investments by state and local governments. In 2006, federal funding provided by gas and diesel fees financed almost half of all highway capital expenditures made by the states.

The federal gas and diesel excises have had nothing to do with the increase in gasoline and diesel fuel prices. The federal gas tax rate has not changed since October 1, 1993.

Here are 10 reasons why the McCain gas tax proposal would be bad for the economy and poor public policy:

1. It would eliminate almost $9 billion that would be invested in road, bridge and public transit investments that benefit the public and American businesses – $7 billion in highway improvements and $2 billion in transit investments. This would trigger a series of negative economic consequences.
2. State and local governments, already cutting back in many instances due to the economic downturn, will decrease their capital investments in highways and transit. This, in turn, will decrease business opportunities for private sector design and construction firms already hit by the recession, which will then reduce demand for related materials, supplies, equipment – and employment.
3. More than 310,000 Americans whose jobs are currently supported by federal investments in highways and transit will have their employment placed at risk.
4. The Highway Trust Fund’s Highway Account, already facing a first-ever deficit due in part to the economic downturn, would see that deficit grow to more than $10.8 billion by September 2009. This will trigger additional cutbacks in state and local investments in highways and transit infrastructure improvements in 2009 and beyond.
5. Even if the federal excises were reduced, the federal government could not guarantee that gas and diesel prices would drop commensurately at the pump. In fact, research shows that when the states of Illinois and Indiana temporarily suspended their sales tax on motor fuel purchases in 2001 in response to escalating retail prices:
   • the impact on consumer pocketbooks was minimal, and
   • state transportation improvement programs were shortchanged by tens of millions of dollars.
6. The U.S. economy would lose an estimated $23 billion in long-term economic benefits that would be generated by $9 billion in highway and transit investments – a net loss of $14 billion. The U.S. Department of Transportation has reported that every dollar in highway infrastructure investments generates $2.60 in economic benefits.
7. Cutting federal investments in highway and transit improvements would exacerbate traffic congestion across the nation – causing motorists and truckers to spend even more on motor fuel. Research by the Texas Transportation Institute shows traffic congestion is now responsible for about 3 billion gallons of wasted motor fuel in the U.S. each year.
8. Cutting federal investments in highway and transit improvements would affect traffic safety. Nearly 43,000 Americans died last year in motor vehicle crashes. Poor road conditions and outdated alignments were a contributing factor in an estimated one-third of them. Highway crashes cost American society $230 billion – $820 per person – each year. Traffic accidents are the leading cause of death of Americans 6 to 28 years of age and result in more permanently disabling injuries than any other type of accident.
9. Reducing or eliminating the federal motor fuels tax would do nothing to increase the supply of motor fuels – a major reason why motor fuel retail prices are up.
10. What would happen when the federal gas tax suspension ends on Labor Day? Would Americans experience – in one day – an 18.4-cent-per-gallon spike in the retail price of motor fuel?

Using the gas tax as a political expediency would be bad public policy and set a dangerous precedent.

Visit the ARTBA website at www.artba.org/gastax.htm for additional information about gas tax issues.