It’s Time to Raise the Federal Fuel Tax

Over the last several months, there has been a lot of talk regarding what the Federal government should do to help ease the sting of high gas prices.

The discussions have ranged from creating a gas tax “holiday” where the federal fuel tax would be suspended during the busy summer travel months, to cutting oil shipments to strategic oil reserves – which actually was recently implemented.

While much of the dialogue has revolved around helping to ease the short term pain caused by rising gas prices, most of the “solutions” that have been kicked around Capitol Hill don’t help to solve the long term problems created by the ever persistent energy – specifically, oil and gasoline – crisis.

So, instead of just chastising our legislators and their inability to deliver a viable solution to our current problems, I’ve come up with a simple plan that will cause only minimal short term pain, but in the end will help to create a long term solution:

  1. Raise the federal fuel tax from 18.4 cents per gallon to 50 cents per gallon.
  2. Impose a $2,500 sales tax on all vehicles sold that do not average at least 28 mpg.

Based on a price of roughly $4 per gallon, the current federal fuel tax accounts for 4.6 percent of the total price of a gallon of fuel. By raising the federal fuel tax to just 50 cents per gallon, the tax would still only account for 11.4 percent of the total price of a gallon of gasoline.

That’s still well under what most citizens of Western European countries pay, who, in some cases face nearly 20 percent fuel taxes. These high fuel taxes are a large reason why fuel consumption has either flat-lined or decreased in most European nations over the past two decades.

Now, I’ll be the first to admit, I’d rather keep my own money than hand it over as tax revenue. I’m sure you’re the same way. However, that’s the point of the matter. It’ll hurt to lose that money. Therefore, I’m willing to bet you’ll probably find ways to drive less.

That means the tax is doing its job!

In addition to helping us curb our fuel usage, the increased fuel tax would be a tremendous revenue boost for the Federal government. Americans currently consume just under 400 million gallons of gasoline each day, so by increasing the federal fuel tax 31.6 cents per gallon, the government would raise an extra $50 billion per year.

Just think what could be done with that extra $50 billion in tax revenue. What if half of that was explicitly earmarked for alternative and sustainable fuel/energy research? It seems to me that we’d find a solution to the problem a lot faster than our current snail’s pace.

The remainder of the tax revenue could then be earmarked for improving public transportation – like expanding and better subsidizing local subway (urban) and bus systems (both urban and non-urban).

This is a fair tax because it is essentially a pay as you use tax; the more fuel you use the more taxes you pay.

Along the same lines, the $2,500 tax for vehicles designated as “gas guzzlers” would also be a fair tax (after all, you choose what you drive), despite the fact that it’s in essence a double-whammy. First, you pay the tax for simply purchasing the fuel inefficient vehicle, and then over the vehicle’s lifetime you pay more in fuel consumption taxes simply because you’re probably going to be using more fuel.

To make the gas guzzler tax a little more fair, it would be implemented in some sort of step process. That way, if your car comes close to meeting the 28 mpg standard – let’s say you buy a car that averages 25 mpg – you’re not penalized the same as someone who buys a vehicle that gets single digit fuel economy.

Again, I know nobody likes to hear the phrase “raising taxes” but in the end, I believe this will be the cure for what ails us. As we adapt to the higher prices we will make the necessary changes required of us to become more energy efficient. We’ll drive less, buy cars with better fuel economy. And, the byproduct of our short-term pain at the pump will be improved public transportation and alternative, sustainable and cleaner sources of energy.

I think we can all live with that.

Comments

  1. You say raise the taxes and all that crap but what you don’t understand is that it would still take over a year to get any benifitts from your idea! I think we should go and take the oil and then the prices would go down I mean hell we take every thing else we want

  2. We need to get over our need for instant gratification. I do understand that it would take time for the benefits to work their way through the system; the idea isn’t a magic pill to instantaneously solve the problems.

    Along the same lines, this is why the government should not be sending out stimulus checks. They should have taken the $150 some-odd billion and invested that money in our infrastructure.

    Instead of the instant gratification of most people getting $600 to $1,200, which, will only help in the short term, we could have a long term solution of job creation and better roads, bridges, public transportation, etc.

  3. I completely agree; I think we could afford a $1 tax on gas; in the short run we would just hurt peoples’ pocketbooks, but in the long run, we would slow our fuel consumption and slow the long-term increase in fuel costs. I’m reminded of George W Bush’s campaign ad against John Kerry just a few years ago saying what a silly idea increasing fuel prices to get people to drive less was… Well, now people are starting to drive less!

  4. Hear, hear! Since the late 70’s, we’ve hidden 80% of the cost of a gallon of gas in our Federal taxes. This would just take a portion of that out of what everybody pays and put it back where it’s generated.

    Additonally, everyone pays $2000 a year in taxes to subsidize car travel — even people who don’t own/can’t afford a car. Let car drivers pay a bit more of their way!

  5. You guys are crazy.

    Why haven’t you thought about the impact that would have on our ECONOMY. People driving less and paying more taxes equals less spending on consumer goods. That equals fewer profits for companies (even good ones), a tumbling stock market. Next what happens is that the companies will stop offering health insurance and 401k plans to their employees. Then what? Do all of you sit at home and read blogs all day or do you actually have a job?

  6. How does raising taxes equal “job creation”? You mean low-paying, low-skill government jobs? The government is already wasteful enough.

  7. Yes, the increased fuel tax would have an impact on our economy. I think I explicitly point out that this would create a short-term crunch and would likely exacerbate the already fragile economic conditions. Many of the things you say are true – consumer spending would constrict, there would be a hit to bottom lines, etc., etc.

    However, much of our current economic problems stem from the very fact that we live beyond our means, buying stuff we don’t need on money that we don’t have. In order for the economy to return to a healthy state, consumers do need to cut back and actually return to being net savers, not net spenders. We are a debt riddled society. That would be fine with the exception of one point – DEBT EVENTUALLY NEEDS TO BE REPAID. If you don’t have the money to do so, and simply borrow more debt to satisfy your current debt, you create an economy built on pillars of sand, not stone. Eventually it will crumble.

    Also, much of our problems currently stem from a ridiculously weak dollar (read: inflation), much of which is caused by serious trade imbalances and government fiscal irresponsibility. The SINGLE largest factor in our trade imbalance is our consumption of foreign oil. If we shock the consumer into driving less, we will consume less oil (over 70% of all imported oil goes towards transportation fuels), and in turn will take steps towards balancing our import/export imbalance. The extra revenue generated by the tax will help balance the Federal Government’s balance sheet, hopefully reducing our record high deficits. Deficit spending is a bad, bad thing.

    Not sure what you mean by raising taxes = job creation. I think the point I was making was that the stimulus package was a bad idea. It’s a short-term shot in the arm. It solves nothing. Instead of pumping out one-time checks, take that money and invest it in our country’s infrastructure. Rebuild crumbling bridges, fix up our interstate highways, improve mass transportation. Yes, while these create what you call “low level jobs” they do create jobs, which will have a much longer lasting effect than giving out $600 checks for people to blow on consumer goods.

  8. Murdock says:

    This is a very interesting idea but, the government already gets too much tax money as it is. Do you really think they would use that extra $50 billion wisely? I doubt it. You know the first thing that the government would do is give themselves a raise so they too can afford the gas they just added tax to.

    Quote “What if half of that ($50 billion) was explicitly earmarked for alternative and sustainable fuel/energy research?” The government can tell us that the extra tax will be used for fuel and energy research but that doesn’t mean they’ll do it. The money that the lottery generates is supposed to be used for schools, but it’s not. Only about 20% is.

    Quote “This is a fair tax because it is essentially a pay as you use tax; the more fuel you use the more taxes you pay.” So is the sales tax. Why doesn’t the government increase that tax instead? Everyone has to buy fuel but not everyone has to buy a $3500 flat screen HDTV or a $350 million dollar house. The sales tax would also cover the “gas guzzlers”. They cost more than other cars so the sales tax would automatically be higher.

    Quote “I think I explicitly point out that this would create a short-term crunch and would likely exacerbate the already fragile economic conditions.” This wouldn’t be a short-term crunch and our economy may not ever recover fully from something like this. Remember, when gas prices increase so does everything else. People are not driving as much, which means they are not going shopping as much or taking vacations as much or going to movies as much…etc, which means the companies that provide these services and products aren’t making as much, which means employees get less of a raise or laid off, which means (you guessed it) less spending. I’m sure by now you can see where this is going.

    Quote “That’s still well under what most citizens of Western European countries pay, who, in some cases face nearly 20 percent fuel taxes.” I don’t live in Western Europe.

  9. Brian,

    Here’s a novel idea. How about we get our congress to use some common sense spending the money we already give the government, in particular, earmarks. Last year, our lawmakers sneaked in $18B that we never knew about, for pet projects and good buddy deals. That’s almost 40% of the $50B additional gas tax you are advocating. It makes no sense to throw good money after bad while the original problem is unresolved.

    Also, in your argument, you don’t address the increase in costs of virtually everything we use every day that will result from your proposed gas tax increase. Just look at prices of everything since the first of this year for an example.

    I have believed for years that the government either doesn’t care or doesn’t want to care how they spend because the mindset is, “there’s always more where that came from”. Well, I’m here to tell you that ain’t necessarily so. Time to get our heads out of our butts.

  10. givenenough says:

    Chris is the only one who has a good reply so far.
    All I hear about is how greedy we are and how we should give back something. Last time I took a health check on my life I found I no longer will get a pension and my health care cost are being pushed on me by my employer. Corporations are reinvesting in low wage countries and now you want to feel good about more taxes to help solve our energy problems. Not a chance….

    Why not just raise revenue from smart poeple like yourself who want to give away your money to the government. Just write a check and mail it in care of Obama, he’ll know what to do with it

  11. Raising the taxes to offset the decreased fuel consumption is a continuation of the original plan. Force drivers away from the fossil fuels.

    As we reach the point where the number of fossil fuel burners no longer provides enough revenue, the structure will change once again.

    But how will the road and bridge improvements be funded?

    Tracking mileage by GPS is a possibility but then there are the exceptions that must be filed when you are transporting your vehicle across the US as many do when moving.

    The final decision will most likely be a Personal Property Tax on all vehicles wheels.
    So yes, a motor cycle would pay 2x, car 4x, box van 6x and so on. The electric cars will pay the same wear tax and the fossil burners will pay a fossil burner penalty in the tax that is already attached to the fuel they burn.

    I am a contractor so the likelihood of me using an electric truck to pull my equipment is unlikely. I will be one of the many who will be hit with a double tax.

    All of this would not be so bad but it is things like giving NASCAR a continuation of tax breaks for two more years that has me confused. Anyone aware that this was part of the 750 billion bailout other than me?

    Why does a billion dollar industry need the money? It doesn’t but our congressmen would pass the bailout unless NASCAR was included.

    Now this makes you wonder who is really getting the road and bridge revenue…?.

  12. jeff ny says:

    The only real solution is a high gas tax with a dollar-for-dollar tax dividend. or an income or payroll dollar-for-dollar tax reduction.
    Give the money back. @ the end of the year so peple can spend or pay bills

  13. u cant take oil that isnt there to take

  14. I sent a memo to the US President that I was in favor of increasing the federal gas tax to .50 cents, but listen up you guys in congress, the money is for only building roads and bridges, and keeping our highways safe for all people.
    Look at the interstates in the morning bumper to bumper to try to move.
    Improve the highway system.
    I live in the country, do you know we have not had an improvement to the county roads since the fifties.
    Talk about jobs, when people can move faster and efficient they get to the place to spend their money.
    Then you place in the fair tax (sales tax for all people), everybody gets taxed, the more money you have the more you spend.
    The American people have the control of their destiny, if you don’t spend and save, you pay less taxes.

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