Why Trump Might Be Open to a 25-cent Federal Gas Tax Increase

President Trump reportedly supports a 25-cent increase in the federal gas tax, but even if a tax-averse Republican Congress balks, most Americans are likely to pay more eventually.

Blame fuel-efficient hybrids and electric vehicles, such as the Prius and Tesla, as well as changing consumer behavior. New cars get much better gas mileage, and Americans don’t drive as much as their forebears.

The result: governments can no longer cover all their road spending with traditional per-gallon gas taxes — it’s not even close. The burden is especially hard on states and localities that own about 98% of all roads.

Gas taxes and related fees cover less than half of all state and local road spending, the Tax Foundation estimates.

Washington kicks in money generated from the federal gas tax, but it’s still not nearly enough. In some cases states have to borrow or draw on their general fund to pay for upkeep and new construction.

That’s why almost half of the 50 states have raises gas taxes in the past three years, including conservative ones such as Indiana and Florida. Other may have to follow suit.

The federal government raised about $37 billion in gas and related taxes in the fiscal year ended Sept. 31, 2016. States and localities generate a somewhat higher amount each year.

Increasing the gas tax by 25 cents would double what Washington collects, the prospects of which would appeal to Trump. The president wants to “rebuild America” and “nation build at home,” but he needs fresh sources of money to do so after the biggest U.S. tax cuts in several decades.

The political cost of such a move is daunting, though.

The financial-advisory firm Strategas Research estimates the combination of higher gasoline prices and higher gasoline taxes could eat up more than half the savings households reaped from the Trump tax cuts. The tax cuts have helped boost Trump’s standing in the polls over the last month.

Another study by the American Road and Transportation Builders Association in 2015 suggests a smaller impact on consumers. The study looked at five states that raised taxes and found that gas dealers passed on about just half the increase.

Still, a tax increase would hit some of Trump’s strongest political supporters hard. Many live in rural areas and have long drives to and from work. Right now, state and federal taxes amount to about 20% of the cost of gas. It would also hurt the poor and lower-income Americans who have to pay a bigger share of their income for energy.

Yet the money would also help other Americans by creating more jobs in construction and improvingthe nation’s roads and bridges, a potential boon for the broader economy.

Trump, a former builder, supposedly urged Republicans in private this week to consider a higher gas tax. He initially favored higher gas taxes as a presidential candidate, but he quickly backtracked after mounting criticism.

Although some Republicans are receptive, a majority appear to be opposed.

Still, even conservative lawmakers know something has to be done. Congress has funded studies aimed at finding alternatives to the gas tax, but none of the ideas have generated broad support.

Some of the options such as meters in vehicles raise enforcement and privacy concerns.

Many Republicans and their allies in Washington would prefer to let the states handle the matter — and take the political heat. The libertarian Cato Institute argues states and locals should be responsible since they own most roads.

“There is no advantage in raising federal highway revenues rather than the states raising their own,” Cato analyst Chris Edwards wrote in a report last month.

Source: Jeffry Bartash, MarketWatch

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