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Federal Gasoline Tax Increase Proposed by U.S. Transit Commission
16 Jan 08
A two-year Transit Commission study has been completed, and is calling for an increase in gasoline (petrol) taxes to help fund national transportation infrastructure maintenance and upgrades.
Global Insight Perspective | | Significance | The National Surface Transportation Policy and Revenue Study Commission has issued its findings, concluding that the best way of meeting the funding requirement to upgrade the country's ageing transportation infrastructure is to increase gasoline taxes by up to US$0.40/gallon over the next five years, increasing annually thereafter by the rate of inflation. | Implications | A gasoline tax increase counts as one of the more radical proposals seen in the United States in recent times, and as such is likely to garner much opposition. Republicans have already lambasted the study and as such its prospects for further legislative advancement appear bleak. | Outlook | The commission's proposal is not helped by the appearance of serious divisions within the panel itself, with its chairperson Mary Peters, the Transportation Secretary, and two others deciding to distance themselves from the study's main recommendation. |
The National Surface Transportation Policy and Revenue Study Commission has just completed a two-year study to determine how best to meet the challenges of funding new investments in the country's ageing and increasingly fragile transportation system. The commission has recommended increasing gasoline (petrol) taxes in the United States by up to US$0.40 per gallon, with the increase occurring gradually over a number of years. Gasoline taxes currently stand at around US$0.184/gallon, and under the plan, this level would increase annually from 2009 by between US$0.05 and US$0.08 for a period of five years, after which annual rises would be linked to inflation. The problem of ageing transportation infrastructure was dramatically brought to national attention last August when a bridge in Minneapolis suddenly collapsed, taking with it several lives and provoking intense debate on how best to remedy the system's shortcomings. The issue of funding has risen to the top of the agenda, and debate has been ongoing over where increased funding could come from. While the commission has suggested increased gasoline taxes to pay for new transportation infrastructure investment, the idea is not without its share of critics, who fear that such a policy may simply provide Congress with an additional way of taxing consumers without yielding measurable improvement in roadway conditions. Additional proposed methods of increasing funding include peak-hour congestion charges and higher freight rates, while rail passengers could see higher ticket prices to help fund infrastructure upgrades. Whatever the case, the commission estimates that the United States will need to invest US$225 billion annually for the next 50 years to upgrade the system, and has noted that current funding is barely reaching 40% of this required amount. The tax increase proposal is certainly not helped by the fact that serious divisions within the commission seem to have appeared, with three out of the 12 commissioners refusing to support the idea. Transportation Secretary Mary Peters, the commission's chairperson, and two other members have decided to distance themselves from the proposal, while suggesting that private investment along with a developed toll system would be a far more reliable way of guaranteeing the investment the transportation system needs. Outlook and Implications Increasing gasoline taxes in the United States has always been a political hot potato which, although sounding good on paper, has never enjoyed broad political or consumer support. Hitting the demand side of gasoline consumption with higher taxes has in the past been proposed as one way of decreasing demand for oil, and thus decreasing the country's exposure to oil imports, particularly of Middle Eastern origin. The sprawling nature of the country's communities, however, makes such a policy unjust in the eyes of many who would find the additional financial burden hard to bear. This fundamental position is unlikely to change, regardless of the original motivation for the tax increase, and especially now when gasoline prices generally have been hitting record levels in excess of US$3/gallon. While the aims of the Transit Commission are laudable, particularly so given that the country's transportation system is indeed in a dire state, whether increasing taxes is the way forward here is very much an open question. Republicans who have seen or heard about the report have been quick to dismiss it, and the appearance of divisions even within the commission itself will do little to bolster outside confidence that this is the right solution. Given these factors, it is unlikely the proposals will head very far up the Congressional legislative ladder.
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