Wednesday, October 27, 2010

Let’s Index the Gas Tax

Josh Borro at NRO has a great idea to index the Federal gas tax to inflation,
Indexing the federal gasoline tax (which is essentially what this proposal is—indexing the gas tax to the price of gas) is good policy. The gas tax was last raised in 1993, and has fallen by a third in real terms since. Many state gas taxes and other vehicle taxes have also fallen in real terms. But this has not led to lower spending on road construction and maintenance—from 1994 to 2008, while GDP grew 103 percent and road spending grew 102 percent, gas and vehicle tax receipts rose only 70 percent.

Governments have made up the difference by tripling their borrowing to finance roads and tripling the diversion of general revenue to pay for road costs. This is a bad trend, because gas taxes below the cost of roads use cause inefficient overuse of roads, and the higher sales and income taxes used to plug the gas tax gap are a drag on the economy. Real annual reductions in gas tax rates hasn’t starved the beast, but have made the way we pay for our road infrastructure less efficient.
Of course he's correct about the efficiencies of indexing and inefficiencies of not doing so, but shouldn't we also catch up the current gas tax to 2010 dollars? There's nothing efficient about indexing a gas tax to inflation that begins from a 30% plus hole.

And of course there's even less efficiency in trying to catch up the gas tax to actually pay for highway costs but trading $4 Trillion in income taxes to get it, but that's really a post for another day.

(Via from Andrew Sullivan)

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