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

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 ...

April 15, 2008

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.

American Jobs Placed at Risk by a Suspension of the Federal Motor Fuel Excises from Memorial Day to Labor Day
State Federal Highway Funds Lost Highway-Related Job Loss
Alabama

$143,236,419

4,982

Alaska

$61,897,629

2,153

Arizona

$141,557,414

4,923

Arkansas

$89,687,329

3,119

California

$664,406,924

23,107

Colorado

$96,360,407

3,351

Connecticut

$98,398,058

3,422

Delaware

$28,171,657

980

District of Columbia

$28,808,088

1,002

Florida

$361,406,927

12,569

Georgia

$261,015,486

9,078

Hawaii

$30,324,115

1,055

Idaho

$52,741,411

1,834

Illinois

$245,092,604

8,524

Indiana

$183,722,596

6,390

Iowa

$82,515,837

2,870

Kansas

$72,772,462

2,531

Kentucky

$123,568,802

4,298

Louisiana

$115,324,718

4,011

Maine

$31,996,510

1,113

Maryland

$115,603,091

4,021

Massachusetts

$123,643,983

4,300

Michigan

$208,380,885

7,247

Minnesota

$113,239,150

3,938

Mississippi

$84,865,211

2,952

Missouri

$167,337,975

5,820

Montana

$67,499,327

2,348

Nebraska

$53,063,602

1,845

Nevada

$51,588,736

1,794

New Hampshire

$32,634,817

1,135

New Jersey

$190,835,827

6,637

New Mexico

$66,376,963

2,309

New York

$333,593,716

11,602

North Carolina

$203,319,748

7,071

North Dakota

$44,451,687

1,546

Ohio

$255,921,209

8,901

Oklahoma

$110,455,105

3,842

Oregon

$82,823,587

2,881

Pennsylvania

$330,462,939

11,493

Rhode Island

$37,114,861

1,291

South Carolina

$117,001,532

4,069

South Dakota

$46,659,690

1,623

Tennessee

$154,841,270

5,385

Texas

$587,447,955

20,431

Utah

$51,367,630

1,787

Vermont

$29,901,442

1,040

Virginia

$188,006,877

6,539

Washington

$125,671,536

4,371

West Virginia

$77,380,593

2,691

Wisconsin

$137,280,141

4,774

Wyoming

$46,223,520

1,608

Highway Subtotal

$7,148,000,000

248,600

Mass Transit Nationwide

$1,787,000,000

62,150

TOTAL

$8,935,000,000

310,750

* Note: state distribution is based on FY 2008 distribution of formula funds. Job loss would be spread over 3-4 years.

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