Budget & Tax

Cut the Federal Gas Tax

September 17, 2015

Trent England

The Federal Highway Trust Fund is running out of money, causing even some Republicans to consider a federal gas tax increase. There is no need, however, to keep funneling billions of transportation dollars through Washington, D.C. A better idea, already introduced in Congress, is to cut the federal tax and let states make up the difference.

Congress first levied a tax on gasoline in 1932 as a way to reduce the federal deficit in the midst of the Great Depression. This one cent per gallon tax was set to expire in one year. Rather than allowing it to expire, however, Congress has routinely extended and occasionally raised the rate of the gas tax.

Since 1993, the federal tax on gasoline has been 18.4 cents per gallon; the tax on diesel is 24.4 cents per gallon. Most of that revenue is directed to the Highway Trust Fund. Gas tax collections grew rapidly during the 1990s. More recently, revenue has flat-lined.

Spending, however, has continued to grow. Politicians in Washington, D.C., have spent transportation dollars faster than they have taken them from taxpayers. When the Fund has come up short, Congress has transferred other dollars into it (from other taxes and from borrowing) rather than cutting back on spending.

The trouble with federal transportation spending is the spending. Both Congress and the U.S. Department of Transportation have gone forward with plans to spend the fuel tax revenues they desire rather than the revenues they are likely to collect. Funds are often directed to pet projects, the kind of pork Oklahoma’s former Sen. Tom Coburn became famous for exposing. Even worse, some federal policies intentionally drive up project costs.

The federal prevailing wage law, the Davis-Bacon Act, was adopted in 1931 to prevent black Americans moving out of the South from “taking” jobs from unionized white workers in the North. It locks in artificially inflated wage rates on projects paid for from the Highway Trust Fund. The Obama Administration has also pushed a similar policy through “project labor agreements.” These mandates on government contractors also lock in above-market prices. Both policies force taxpayers to pay more for less.

While some states have similarly wasteful policies, Oklahoma does not. Yet when federal gas tax dollars come back to states like Oklahoma, they bring federal policies with them. Even when state and county governments are picking up some of the tab, with federal funds in the mix, federal policies like Davis-Bacon drive up the cost of the entire project. All this is on top of whatever other strings might be attached to particular federal funding programs.

A better way to support our transportation infrastructure would be to keep more of our gas tax dollars closer to home. There is already a plan in Congress to do that, the Transportation Empowerment Act, by Sen. Mike Lee (R-UT) and Rep. Tom Graves (R-GA). Their bill would phase down the federal gas tax to 3.7 cents per gallon and transfer back nearly all power over transportation to state and local governments. Those governments would raise their own gas taxes to make up for lost federal revenue.

Such a change would protect taxpayers from wasteful federal policies and other meddling from afar. It would shift transportation decision-making away from faceless federal bureaucracies and return it to people you or I might come across at a neighborhood meeting or in the grocery store.

The interstate highway system was completed in 1993. The time has come to keep our gas tax dollars, and the power to decide how to spend them, here at home.