So, let’s just say that almost everyone dislikes high gas prices — with the possible exception of an oil company executive or two. You won’t find many in your neighborhood, I’m guessing.
Which means former South Carolina Gov. Nikki Haley was hardly engaging in risky political behavior during the second Republican runners-up debate recently when she said the federal government should get rid of its tax on gas and diesel fuel.
Less tax, lower price. That’s a simple concept. Or, rather, a simple tip to a complicated and fraught tax policy iceberg.
In the latest Deseret News/Hinckley Institute of Politics poll, Haley draws 11% support in Utah, compared to Donald Trump’s 33%. Nationally, the gulf is wider. FiveThirtyEight has Haley at 6.6%, compared to Trump’s 58.4%. Gas tax talk probably won’t move that needle.
All that aside, however, Haley’s gas tax elimination plan caught the attention of a few economists and policy wonks, and they were not impressed.
So, let’s examine it.
First, it’s easy to get confused here. If you own a car with a combustion engine, you pay both state and federal taxes every time you fill up. Because a president can’t control the taxes states set, Haley was concerned only with the federal tax, which has been 18.4 cents per gallon (24.4 cents for diesel), since 1993.
The gas tax is as close to a user fee as a tax can get. You use the roads. Your heavy car wears out the pavement. You fill up your car and you pay the tax. The tax feeds the highway trust fund, and Washington distributes the money in that fund to states for transportation projects.
But because Congress has been unable, or unwilling, to raise that tax for 30 years, inflation has cut the buying power of the money it raises by about half. That means the federal government has been increasingly supplementing gas tax money with the general fund, which comes from income taxes and other sources.
Take away the tax, and that subsidy becomes 100%, but the need for transportation projects won’t go away.
Taxes affect behavior. A general rule is that the more you tax an item or activity, the less of that thing you get. Writing for the Tax Foundation in Washington, Alex Muresianu and William McBride wrote that this shift toward the general fund, “means we are moving more towards a policy of subsidizing road use while punishing work, savings, and investment.”
Writing for the American Enterprise Institute, senior fellow Kyle Pomerleau reacted to Haley’s idea by warning about unintended consequences to the environment.
“The gas tax and diesel tax act as prices for road use,” he said. “If lawmakers eliminate these taxes, the price of driving would fall, leading to more cars and trucks using the same roads. Increased driving would increase the externalities related to driving such as congestion and pollution.”
This kind of talk — from both politicians and economists — tends to emerge whenever gas prices rise. Politicians look for popular bumper sticker quotes. Economists make long, nuanced arguments backed by studies. I let you guess which ones work better. The good news is that prices usually drop again before the politicians can put teeth behind their bumper stickers.
Gas taxes face an even bigger problem, of course. The economists I read all pointed to the rise in electric and hybrid vehicles, which use little or no gasoline. Depending on which source you use, the percentage of drivers with electric vehicles is somewhere between 4% and 7%. But a recent Deseret News/Hinckley Institute poll found 12% of Utahns say they own an electric or hybrid car, and that 56% would at least probably look for one the next time they buy a car. The trend is obvious.
Utah is way ahead of Washington. Lawmakers here just passed a law that puts a 12.5% tax on electric vehicle charging stations — another user fee.
The best policy would be for Washington to do the same.
But, with a nod to my journalism professors from all those years ago, almost no one wants to hear that in a presidential debate.