Gas Tax Suspension - An Alternative

It is rare that the Presidential campaign has touched upon issues directly related to transportation policy. However, recently two of the campaigns – McCain and Clinton – have come out with proposals to temporarily suspend the federal fuel tax over the busy summer travel season. The reasoning behind their proposals is that both candidates believe the economy needs a boost and that a suspension of the gas tax would accomplish that goal. There is some question about whether a suspension would accomplish that goal. As Len Burman points out, a gas tax suspension might not actually result in a lower price for gas, given that demand would increase. Furthermore, Steve Mufson and our own Paul Bledsoe note that this policy seems to contradict the candidate’s positions on climate change. These two points make this policy proposal questionable from an economic and environmental perspective.

What has not been covered as much in the press is whether this proposal makes sense from a transportation policy perspective. Transportation policy and planning generally operates on the principle that user fees should be aligned with costs in order to maximize efficiency. If a network component is severely underpriced, this creates congestion and potentially other inefficiencies. If the network component is priced too high, no one will use it and this is also inefficient for society. Using this principle, transportation planners typically advocate for things like congestion pricing, which better aligns user fees with the cost of driving.

Most highways, roads, and bridges in this country are perceived as “free” because they are not tolled. The gas tax is the closest thing we have to a user fee for this infrastructure, despite the fact that highways, roads and bridges help to create negative externalities such as congestion, pollution, oil dependence, and climate change. Our gas tax is well below that of other industrialized nations, and this combined with a lack of tolling makes driving relatively inexpensive. Although inexpensive and underpriced driving may foster some economic benefits, is also fosters an inefficient transportation network. User fees need to be brought more directly in line with costs, and suspending the gas tax accomplishes the opposite.

A more innovative and effective proposal could have called for suspending the gas tax in all states that agreed to impose variable pricing on the congested parts of their federal-aid highway system. The new revenues could substitute for the gas tax in those states, with money left over for the states to use as they wish. This would provide economic benefits all around, while still providing for a solid stump speech.

-Joshua Schank