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Commentary

Gas Prices, Gas Taxes and Saddam Hussein


     
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With inflation-adjusted prices of gasoline reaching levels not seen since the Gulf War and the Republicans in Congress apparently acceding to the Clinton administration’s resistance to repealing the 4.3 cent-per-gallon surcharge added to the federal excise tax in 1993, there is no better time to assess the politics and economics of gas taxes.

Nationwide, the average price of a gallon of gasoline includes 43 cents in federal, state and local excise taxes. Including the surcharge passed on Vice President Gore’s tie-breaking vote in 1993, the federal gasoline tax is 18.4 cents a gallon. The national average for state gasoline taxes is 22.6 cents a gallon and the national average for local gasoline taxes is about 2 cents a gallon. The total annual gasoline tax bill for Americans is about $53 billion, including $23 billion in federal tax and $30 billion in state and local taxes. When the $14 billion in federal taxes paid every year by independent truck operators and other diesel fuel users is added in, the total annual motor fuels tax bill for the nation is nearly $67 billion. That works out to about $250 for every man, woman and child; $380 for every licensed driver; and more than $670 for the average family.

This financial goldmine was not exactly what Franklin D. Roosevelt had in mind when he asked Congress in 1932 to impose a one cent per gallon federal excise tax on gasoline as a "temporary" revenue measure designed to offset shrinking income tax receipts as the economy moved into depression. Enacted by Congress with the understanding that it would be in effect for one year only, the federal excise tax on gasoline was subsequently extended and increased, sold not as an emergency measure, but as a "user fee" with revenues earmarked for building and repairing the nation’s highways. Fast forward to 1993. The Clinton administration pushed the 4.3 cent-per-gallon tax surcharge through Congress mostly as a deficit-reduction measure. Now that federal budget surpluses are projected as far as the eye can see, the surcharge seems to have become a permanent feature of the tax code. Le plus ça change, le plus c’est la même chose.

Those who oppose repealing the 1993 surcharge contend that even if all of the reduction in tax were to be passed on to consumers in the form of lower gasoline prices, the amount is so trivial that no one would notice. That may be true for drivers who commute 500 miles per week in vehicles that get 20 miles to the gallon, but even small savings can make the difference between life and death for the nation’s truckers who drive 500 or 600 miles per day in vehicles that get six miles to the gallon.

There is no political will in Washington for reducing the federal gas tax, not because the effect on price would be small, but because there is a powerful political constituency, comprised mainly of environmental special interests, but also oil companies and the road construction industry, that is happy with the run-up in the price of gas. In Earth in the Balance, Mr. Gore wrote that he hoped the internal combustion engine would be a thing of the past in 25 years. Asked recently if that goal was still part of his policy agenda, he said he thought that it could be reached much sooner. High gas prices, which help curtail fuel consumption, are seen as a good thing by many of these special interests. Politicians are likewise happy to perpetuate the "user fee" myth, which helps ensure that high gas taxes continue to produce a steady stream of revenue for funding highway pork.

It is true that a modest reduction in the federal excise tax on gasoline will do nothing to increase supply, at least in the short run. But government does not have to stand idly by, impotently wringing its hands about the recent actions of the OPEC cartel. It could move to ease rules preventing exploitation of known oil reserves offshore and on Alaska’s North Slope, policies that have increased America’s reliance on foreign oil and for which America’s drivers are now paying the price.

Some of the burden on the heavily taxed and regulated domestic oil industry could also be lifted. More importantly, the U.S. government could help destabilize OPEC’s agreement to limit production by buying oil from Iraq. Like the decades-long embargo on Cuban exports, the economic sanctions imposed on Iraq have done nothing to hasten the collapse of Saddam Hussein’s regime. Whatever political benefits may have been derived from these policies in the past, it would be understandable if the nation’s drivers began questioning whether, on top of a heavy federal, state and local tax bite, these benefits are luxuries they can still afford.


William F. Shughart II is a Research Director and Senior Fellow at The Independent Institute, J. Fish Smith Professor in Public Choice in the Jon M. Huntsman School of Business at Utah State University, and editor of the Independent Institute book, Taxing Choice: The Predatory Politics of Fiscal Discrimination.


  From William F. Shughart II
TAXING CHOICE: The Predatory Politics of Fiscal Discrimination
So-called “sin taxes”—the taxing of certain products, like alcohol and tobacco, that are deemed to be “politically incorrect”—have long been a favorite way for politicians to fund programs benefiting special interest groups. But this concept has been applied to such “sinful” products as soft drinks, margarine, telephone calls, airline tickets, and even fishing gear. What is the true record of this selective, often punitive, approach to taxation?






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