Sunday, August 08, 2010

Raising the gas tax hurts, not helps, the economy

According to numerous news outlets, Sen. George Voinovich (R-OH) is suggesting an increase in the federal gasoline tax.

He believes that an increase will help close the budget deficit and create jobs. I think he's spent too much time in Washington's logic-free zone.

From The Hill:

In a letter to members of President Obama's debt commission, Voinovich laid out his argument for the increase.

"Fuel taxes today fund the vast majority of the federal government's investment in infrastructure projects," Voinovich wrote in the letter. "Due to dwindling fuel tax receipts, Congress has had to transfer billions of dollars from the General Fund to the Highway Trust Fund to maintain our current level of federal involvement."

From a factual basis, Voinovich is correct. They are transferring billions into the Highway Trust Fund.

But the question shouldn't be 'how do we get more money into the Trust Fund?' We should be asking WHY government is spending more money from the Trust Fund than it is taking in?!? Can you say pork? Because it's all the 'earmarks' that members of Congress fund that leads to the overspending. And since Congress gets to decide whether or not to transfer money from the General Fund, they easily do so.

Voinovich should NOT be looking for ways to get more money to spend, but for ways to stay within the budget based upon the revenues they do have. (And this doesn't even get into the discussion of whether or not the Trust Fund is constitutional in the first place.)

He 'explains' that the gasoline taxes haven't been increased since 1993 when it went from 4.3 cents per gallon up to 18.4 cents per gallon. For reference, that's a 328% increase!

Too many politicians believe that a lack of increased taxation is somehow a problem. And it might be a problem for government, but it certainly isn't a problem for the taxpayer.

Increasing taxes on an item means people will use less of it - not more. Perhaps he believes that people will pay whatever they must to have the flexibility and freedom that driving provides them. But Voinovich is wrong if he believes that there will not be some decrease in consumption of an item whose price is raised.

Voinovich fails to account for the impact such an increase will have to the overall economy. If gasoline prices rise, so will the price of all items that are transported. Trucking firms and delivery companies (UPS and FedEx) will have to raise their prices to accommodate for their increased costs. Many firms tack on a fuel surcharge as it is, so the cost of that surcharge will be greater if Voinovich has his way.

Our senator is also mistaken when it comes to creating jobs. While government payment for construction and road work does employ people, it doesn't do so in a sustainable way. And with 'sustainable' being the focus of liberals these days, you'd think this would be an issue - but, strangely, it isn't.

When the government money runs out, as it always does, the jobs go away. This is not the type of 'growth' the country needs. What we do need is a low-tax environment that allows private companies and individuals to have the funds to spend as they see fit. The investment that results leads to more opportunities, more employment and more demand for services. That is what leads our economy - not higher taxation so government can create the illusion of growth.

Is Voinovich correct that we have a crumbling infrastructure? I don't know - and a look at Toledo roads might lead everyone to believe that is the case. But Toledo's roads are Toledo's problem - not the problem of the federal government.

So let's look at the root of the problem: the spending. The Highway Trust Fund was supposed to pay for interstates and highways, but today it pays for so much more. As Reason Foundation says:

" ... asking federal highway users to pay substantially more in order to fund expanded programs for sidewalks, bikeways, recreational trails and more transit is unlikely to succeed, since the large majority of highway users do not use, and would not benefit from, these mostly localized urban projects. Principles of federalism suggest that these kinds of projects are more appropriately funded at state or local levels of government."

This Washington Times article says it even more plainly:

We invented the federal Highway Trust Fund in 1956, promising motorists and truckers that all proceeds from a new federal gas tax would be spent on building the interstate system. They aren't. Congress has expanded federal highway spending beyond interstates to all types of roadways. And ever since 1982, a portion of those "highway user taxes" have been diverted to urban transit. Today, the federal role in transportation includes mandating sidewalks, funding bike paths and creating scenic trails.

As a result, spending exceeds gas-tax revenues and the Highway Trust Fund is broke. Some claim this is because the 18.3-cents-per-gallon federal gas tax needs to be raised. But drivers can fairly put the blame on the fact that 25 percent of gas-tax funds are diverted to non-highway uses.

A key to fixing the problem is to identify what should be federal and what should be state and local responsibilities. In principle, only the interstate highways - our key arteries for interstate commerce - should rise to the level of the federal government. Other highways, streets, sidewalks, bike paths, local transit lines, etc., are more properly state and local concerns.

So rather than push for a tax hike, if Voinovich were to push for an end to funding non-highway projects, the Highway Trust Fund would have about another $11 billion per year to address the aging infrastructure he's so concerned about.

That would be the conservative, fiscally-prudent thing to do. But that also means that a lot of politicians and individuals who've raided the fund for non-highway purposes might find that, on a local level, their pet projects don't make the grade.

We've seen it here in Toledo - opposition to bike paths when the money could be better spent actually improving the roads and eliminating our pot holes. But the excuse our city government has given us is that the funding for bike paths is 'federal money.' That just means that the federal politicians have substituted their will for the will of the people in terms of priorities for how tax dollars are spent. Eliminating these non-highway projects also advances the opinion of our Founding Fathers - that such decisions are better made at a local level, not the federal one.

If Sen. Voinovich were truly interested in the federal deficit and the Highway Trust Fund, he'd look for ways to reduce spending - not for ways to fleece the taxpayers. And he'd work to eliminate non-highway projects for the HTF so that the limited dollars it takes in can be spent on the problems the highway system faces.

Of course, this kind of common-sense reasoning is completely ignored by the people making the decisions. Perhaps it boils down to the fact that we need different people in the decision-making role.


Hooda Thunkit (Dave Zawodny) said...


George falls firmly into the RINO category in my book.

And he drinks way too much of that democrat Kool Aide, where the only answer to increasing revenues is by raising taxes.

He seems to have forgotten that by lowering taxes revenue always goes up.

It's a shame, wasting a mind like that, especially in a position of power. . .

Kadim said...

Nice post. I believe in the importance of good infrastructure and that government does have a role to play in providing that. Within that context, I'm open to proposed changes to the federal gasoline tax.

I am however always bugged by how politicians talk about creating jobs with my tax dollars. The jobs being created are a means to an end (like better infrastructure) not the end itself. As a person who believes in small government and low taxes, I want the government to set up a good environment for the private sector to create jobs, not the government to be the main jobs creator.

Which brings me to my annoyance of the moment, one which I was hoping you'd comment on.

The Governor has received a lot of criticism for the fact that the provider of the energy efficient rebates for appliances was outsourcing to Central America. People were pretty upset about this.

My issue is that no small government conservatives came out to defend him. I understand it's an election year and all, and many are out of work, but I rather have tax savings and smaller government, both of which can be achieved through outsourcing, than the government providing jobs at higher rates.

I truly believe that outsourcing is a solution to cut taxes and the size of government. Why aren't conservatives talking about that?

Maggie Thurber said...

Kadim - you raise a very good question. I didn't comment on the issue primarily because my thinking on the subject starts at the rebate.

If the federal government didn't provide tax money to try to entice people into buying only appliances that they approved of, we wouldn't have the states incurring the costs of actually processing those rebates. We then wouldn't have to worry about whether or not the jobs were 'outsourced.'

Personally, it seems quite hypocritical that they're complaining when the jobs leave the country. Usually they complain when the jobs leave the state, too. In this case, the contract went out of state and then out of the country. You really can't complain about one without complaining about the other, though I know some justify it by saying at least the tax money was staying with the people who 'paid' it.

But the lowest bid is the lowest bid. When people don't like the fact that the lowest bid is from X, they begin to want 'local preferences' - but that's a problem with the overall business environment that they fail to recognize and I did do a post about that subject.

I really don't have an issue with where the work is being done. We wouldn't even be worrying about that if the federal government hadn't spent our tax dollars in a give-away in the first place.

And the stupidist part of the whole thing? You had to get the old appliances destroyed. There are a lot of people who would have put those old appliances to good use but the federal government, in it's logic-free thinking, decided to eliminate their re-use by people who might not have been able to afford to purchase a new appliance, but who would have loved to have the ones being replaced.

So....I'll get off my soap box now. LOL

Kadim said...


That's fair. I narrowed my thoughts to only the outsourcing portion, not the actual program (which I agree is absurd.)

Tim Higgins said...


It seems interesting that nowhere in his discussion does soon-to-be-former Senator Voinovich explain that some of the transfer of cash from general funds to the Highway Trust Fund was caused by the government itself. Increasing CAFE standards, the growth of hybrid automobiles, and compliance by the public to reduce usage (voluntarily or because of simple economics of increasing gas prices) has led to reduced gasoline consumption. (Which we were told was one of their original goals)

The laws of unintended consequences and diminishing returns once again then had their way with the plans of elite Federal prognosticators giving them exactly what they sought and less to work with.

Using the punishment of taxation usually succeeds in behavior modification it seeks. This in turn leads to increasingly low tax revenue generation. Voinovich merely illustrates what is inevitably the government's next step, a death spiral of increasing taxation which has no end and kills the revenue source.

Black Swamp Road Geek said...

You are wrong here.

First off, the $11 Billion in waste would be a minor infusion into infrastructure. Sure less money can be spent on sidewalks, but the vast majority of the Federal Gas Tax goes to projects funded on a need basis and awarded on the low bid.

The gas tax was last raised with legistlation passed in 1993. The price of gasoline in 1993. The cost of fuel then was $1.07 per gallon. Today the price of fuel is $2.70 or more per gallon.

Fuel is one of the biggest drivers in the costs of construction as contractors have to use it to run their equipment. In addition, oil is required to produce asphalt so the costs of that have increased dramatically with the price of fuel.

So the reality is you are suggesting funding a program with 1993 dollars in 2010 and beyond. None of us make the same rate we did in 1993 and to expect that to be the case in the construction industry is just unreasonable.

The result of this probalem is that now state DOT's are building fewer projects today (outside of stimulus funding) than they were previously. That means less work for contractors, engineers and testing agencies required to build a quality product. As an engineer myself I have first hand experience of job losses in that industry. And many others due to the lack of projects.

I am a conservative guy, but you have to be realistic at the same time. I challenge you to research the price of asphalt since 1993, the price of stone, the price of concrete and the price of labor and ask yourself if additional funding is not needed.

Does pork exist? Yes. But partly because of the way the current legistlation is written. A bipartisan group completed a comprehensive plan on how to fix the legistlation that was completed in 2008 to reform the number of programs and make it more efficient.

Are taxes bad for the economy, of course. But how to you expect to account for these increases in costs while at the same time demand that all deficient bridges get fixed and potholes smoothed.

Maggie Thurber said...

BSRG - perhaps you've misunderstood my primary point: before you raise taxes in a down economy, you need to prove to the people paying the bills that you're being prudent, frugal and efficient with their dollars. No elected official should ever recommend raising taxes for a certain purpose when they know that they're spending those funds on items not related to the purpose.

While you seem to believe that $11 billion is a 'minor infusion,' I'll start with the $11 billion if you don't mind.

I'd also like a better segregation of state versus federal projects so that the federal money is spent only on such national transportation issues.

I don't discount the rising pricing of supplies, labor, etc. But I go back to the main point - cut the wasteful spending before you ask for more money. Until you do so, there is no assurance that any increased funds won't continue to be wasted.

Once we've seen them actually cut the waste, then we can better evaulate the appropriate level of funding and the need for anything additional.

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