Gas Tax Mission Creep: From User-Pays to Carbon Tax?

The Niskanen Center is a new libertarian think tank that we at CEI look forward to working with on a number of issues. However, one where we are unlikely to agree is on the virtues of a real-world tax on carbon emissions. Sarah E. Hunt had a post last week over at the Niskanen Center's Climate Unplugged blog arguing that Senate EPW chairman Jim Inhofe's recent defense of the federal gas tax as an infrastructure user tax is at odds with his antipathy to a carbon tax.

Now, I have criticized Sen. Inhofe's blindspot on infrastructure spending in the past, as he has long admitted he is "a big spender in two areas: national defense and infrastructure." But is Sen. Inhofe's position on the federal excise taxes on motor fuels really contradictory? Under closer examination, the answer is no.

Sen. Inhofe supports fuel taxes in the way they have been used since 1956, when Congress greatly expanded the federal-aid highway programs to construct the Interstate Highway System. Built upon the user-pays/user-benefits and pay-as-you-go principles, Congress directed the proceeds from highway user taxes into the Highway Trust Fund, which was intentionally designed to bypass the general treasury and annual appropriations battles. Multi-year highway (and later transit) program reauthorization legislation then specified outlays to various formula-based disbursement programs that flow to state departments of transportation, with Congress setting total outlays to approximate projected revenues over that period.

Of the four major fuel tax increases since the modern federal-aid system was established, two were solely infrastructure revenue-raisers, one was half user-tax and half deficit reduction, and one, the last increase in 1993 that brought the current rate up to 18.4 cents per gallon of gasoline, was intended solely for deficit reduction. That 4.3-cent increase from 1993 aimed at deficit reduction was redirected to the Highway Trust Fund in 1997. This is where the federal gas tax rate sits today.

Note that promoting environmental benefits appears nowhere above. Regardless of your position on federal fuel taxes, they have never been used for any purpose other than dedicated infrastructure funding and, very occasionally and temporarily, deficit reduction.* In recent years, the traditional federal-aid system has started to break down, with Congress refusing to either reduce outlays to meet projected revenues or increase the fuel tax rates. Instead, Congress has bailed out the Highway Trust Fund with over $50 billion in general funds over the past decade, moving the U.S. in a road socialist direction.

Sen. Inhofe supports a large federal role in the provision of transportation infrastructure. We at CEI would like to see a much, much smaller federal role and support road-user pricing that could be used to reduce traffic congestion, which currently results in 2.9 billion gallons of motor fuel being wasted each year by drivers stuck in traffic (around 2 percent of gasoline and diesel consumed annually in the U.S.). (Perhaps a climate policy compromise would involve refocusing transportation programs to their core missions of access, mobility, and congestion mitigation to reduce the amount of wasted fuel and excess carbon emissions?) The Reason Foundation's Bob Poole has an excellent proposal to phase out fuel taxes and replace them with modern all-electronic tolling systems. 

But it is entirely consistent to be open to fuel tax increases for the purpose of infrastructure funding while opposing the transformation of the gas tax into a narrow tax on a minority of carbon emissions. This gas-tax-as-carbon-tax would only apply to road transport and therefore leave more than 75 percent of carbon emissions untaxed. It would also constitute yet another road use subsidy to the wealthy who drive coal-powered electric vehicles and thus avoid the fuel taxes that support infrastructure spending, further undermining the longstanding user-pays/user-benefits principle and shifting the burden of the income-regressive gas tax onto the backs of poor motorists. Given that rationalizing the relatively simple federal-aid highway programs seems to be too much for Congress to handle, attempting to remake federal fuel excise taxes into a something-for-everyone panacea would appear to be more unwise mission creep.

*The logic behind the 1986 creation of the Leaking Underground Storage Tank (LUST) Trust Fund and its dedicated 0.1-cent per gallon additional tax could be regarded as an environmental benefits rationale. However, its magnitude was so small, problem it aimed to address so temporary and specific, and Congress has in recent years completely raided the LUST Trust Fund to bail out core highway programs that I left it out of the main discussion.