The Gas Tax, It's Purchasing Power and Our Economy

The transportation system in the United States is funded primarily by state and federal taxes. These taxes provide about 90 percent of the funds in the Highway Trust Fund and a substantial part of state transportation budgets. Unfortunately, increasing gas taxes has proven to be extremely difficult, even though with taking inflation into account, these taxes effectively go down in impact every year. Though the federal gas tax accounts for a large portion of what pays for highways, bridges and other infrastructure projects, its value has remained at 18.4 cents per gallon since 1993. Since this increase, the purchasing power of the 18.4 cents has declined by 33 percent. The Political Cartel Foundation suggests that if we were to account for inflation, Congress would have to raise the gas tax by 7.6 cents just to keep it at the same purchasing power it was in 1993.

In its history, the federal gas tax has only been increased three times in the last 40 years. The lack of increases in tax revenues, along with increased miles traveled by vehicles, most of which are even more fuel efficient, has led to a massive funding shortfall for the transportation system. In fact, the current estimated shortfall between gas tax revenues and expenses is between 20 and 70 cents a gallon. The National Surface Transportation infrastructure Financing Commission reported that the funding gap in the Highway Trust Fund could reach $2.3 trillion over the coming 25 years.


As you can imagine, this has definitely put a damper on the repairs of our transit infrastructure seen in the many crumbling bridges and potholes around America. After the collapse of Interstate Highway 35W bridge in Minneapolis, Minnesota, a report announced by the Federal Highway Administration showed that about 25 percent of all 603,245 U.S. public road bridges are classified as deficient. According to the Department of Transportation, an immediate "cost-beneficial" investment aimed at replacing or repairing deficient bridges might cost nearly $99 billion.

Greg Mankiw, a professor of economics at Harvard University suggests that a one-dollar increase in the gasoline tax would generate $100 billion dollars in revenue in just one year. Not only could an increase in the federal gas tax greatly help repair our roadways, but it could also help pay off the deficit and economic bailout currently facing the US government. As these bailouts are used to stimulate the economy, hopefully they would be able to more than offset the impact of high gas prices would have on the economy. It is possible that these bailouts could create more jobs, make tax cuts for businesses, and reduce the demand for fossil fuels by increasing public transportation and increasing research on new sources of energy. If spent correctly, this gas tax should in fact give a boost to our economy.