Raising the Gas Tax for Deficit Reduction

Few issues incite more controversy and clamor than the national “gas tax”. With the national deficit surpassing $13 trillion, some have eyed raising the national gas tax as a strategy for deficit reduction.

Throughout history the gas tax has been utilized as a deficit reduction mechanism. When the gas tax was first conceived in 1932, for example, President Hoover used the tax revenues as a temporary means to balance the Depression-stricken economy, although the tax was made permanent under President Roosevelt. In 1990 and 1993, Presidents Bush and Clinton also increased the national gas tax in part to reduce the national deficit. So are we at that point again today of raising the gas tax as a means to balance the budget?

Comparing 1990 and 1993 deficit levels with our current fiscal condition is revealing. In 1990, the national debt was 55.9% of GDP, while in 1993, the debt level was 66.1% of GDP. As of June 2010, our national debt is a staggering 90% of our GDP. Therefore, comparatively speaking, raising the gas tax today for deficit reduction purposes would seem economically reasonable given how our deficit situation is far more pronounced than it was in either 1990 or 1993. On the other hand, a small increase would have much less of an impact on deficit reduction because of the size of the deficit.

While current economic conditions would not make the decision to raise the gas tax as a means to lower the deficit unusual, a lack of political will prevents such an increase. Congressmen on both sides of the aisle have refused to even consider raising the tax in the face of the 2010 midterm elections, and Transportation Secretary Ray LaHood has stated publicly that the Obama administration is not considering raising the gas tax. Other factors, like the perceived high ($2.75/gallon nationally) though historically low price of gas, inequity faced by rural and poorer families if the tax was increased, and the anti-tax movement have prevented any momentum for an increase from materializing. Unless there is a shift in administration policy and a real push on their part, these factors are unlikely to be overcome.

Therefore, while we might be far past-due for an increase in the gas tax in order to reduce current deficit levels, and maybe even fund a transportation bill, the political environment coupled with the chilly public opinion towards an increase is likely to prevent it from occurring in the near future even in the face of cries to lower the deficit.