America is running out of money for federal transportation projects and it's all for one fairly simple reason — gasoline tax revenue is declining:
This is in part because people are driving somewhat less and in part because cars are becoming more fuel efficient.
But the most fundamental reason that inflation-adjusted gasoline tax revenue is in long-term decline is that the gasoline tax itself is not pegged to inflation. It was fixed at 18.4 cents per gallon in 1993, and it remains at 18.4 cents per gallon over 20 years later.
Had the gas tax been indexed to inflation all this time, it would be 30.9 cents today and there would be no federal transportation revenue crisis. Late last year Representative Earl Blumenauer (D-OR) introduced a bill that would plug the funding gap with a phased 15 cent increase in the gas tax after which it would be automatically adjusted for inflation.
It's a great idea which, unfortunately, nobody else in American politics seem willing to embrace.
Instead, the Obama administration wants to plug the gap temporarily with higher corporate income tax revenues. This works, mathematically, but it ignores the multiple very sound reasons congress has traditionally turned to gasoline taxes for transportation funding. For starters, gas taxes serve as a kind of user fee that ensures that the people who benefit from highways — those who drive on them a lot — are doing the most to pay for them. They also help to constrain congestion. Last but by no means least, as anyone who's ever rolled down the windows in a crowded tunnel can tell you, burning gasoline creates a lot of pollution.
In a 2007 paper, Ian Parry, Margaret Walls, and Winston Harrington found that the overall social cost (including road congestion, highway deaths, and global warming) of burning a gallon of gasoline is about $2.10. If you simply restrict your attention to local pollution issues — things like the high rate of asthma suffered by kids who grow up near highways — the number is 42 cents.
In other words, restoring the purchasing power of the gas tax to its 1993 level would be more than justified even if the revenue were completely unnecessary. And, conveniently, the country is also facing an acute transportation funding crisis. This is one case where solving a policy problem doesn't require any new ideas — the best solution would simply be to stick with the old idea of the gas tax and correct for inflation.