Federal Gas Tax for the Future Discussion

Federal Gas Tax for the Future Discussion
Read through the following article on the federal gas tax, drafted by the Institute on Taxation and Economic Policy (dated September 23, 2013). As you read, first realize that this paper was created by an organization that most likely has an agenda; however, I offer it to you nonetheless as a considerable amount of the findings ring true.
I ask that, after you read it, chime in with your thoughts on what your generation will do in order to solve this pressing dilemma (i.e. the threat to the nation’s transportation systems, due to a policy issue that pertains to funding). Your answers can be anywhere outside the box…
Federal Gas Tax for the Future Discussion
you might have some thoughts on better ways to general revenues;
you might choose to promote alternative forms of transportation;
or, perhaps you feel that we spend too much on transportation as it is, and so you might elect to reapportion those funds earmarked for new construction to repair / maintenance instead.
Write a short paragraph with your ideas on a viable solution and present the same in the discussion forum below
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Executive Summary
The gas tax is the single most important source of transportation funding for the federal government. Together, taxes on gasoline and diesel fuel raise over $30 billion per year, or 85 percent of the revenue flowing into the nation’s transportation spending account.
But gas tax revenues are on an unsustainable course. Over the last five years, Congress has transferred more than $53 billion from the general fund to the transportation fund in order to compensate for lagging gas tax revenues. By 2015, the transportation fund will be insolvent unless an additional $15 billion transfer is made. Larger transfers will be needed in subsequent years.
Federal Gas Tax for the Future Discussion
Two important, yet completely unrelated developments have combined to greatly reduce the purchasing power of the poorly-designed federal gas tax. Improvements in vehicle fuel-efficiencyhave cut directly into gas tax revenues by allowing drivers to travel farther distances while buying less gasoline. Meanwhile, inevitable growth in the cost of asphalt, machinery, and other construction materials has put additional strain on the gas tax because its rate has not been adjusted to keep pace. The combined impact of these two factors has reduced the value of the gas tax by 28 percent relative to 1997—the year in which the federal government decided the gas tax should be used exclusively for transportation purposes.
Comparing the relative importance of these two issues, over three-fourths (78 percent) of the current gasoline tax revenue shortfall is a result of Congress’ failure to plan for inevitable growth in the cost of building and maintaining the nation’s infrastructure. The remainder (22 percent) is due to improvements in vehicle fuel-efficiency. In other words, construction cost growth has been 3.5 times more important than fuel-efficiency gains in eroding the purchasing power of the gas tax.
This current gas tax revenue shortfall could have been prevented if the tax was better designed. Currently, the gas tax is levied as a fixed amount per gallon sold: 18.4 cents per gallon. A well-designed “variable-rate” tax structure, however, that rises each year alongside construction cost inflation and fuel-efficiency growth would have brought the nation’s transportation account from frequent deficits to surpluses in every year. This reform would have raised a total of $215 billion in revenue to build and maintain America’s infrastructure—including $19 billion in 2013 alone—if it had been enacted in 1997.
The cost of this reform for the average driver would have been fairly modest. The gas tax rate today would be 29 cents per gallon—or 10.6 cents higher than where it currently stands. This increase would have been phased-in gradually, with the tax rate increase in most years amounting to less than 1 cent per gallon. That 10.6 cent tax increase would cost the average driver $4.66 per month in
Federal Gas Tax for the Future Discussion
2013.
Such a reform is not without precedent. Congress has already recognized the importance of planning for inflation in other areas of the tax code—most of the nation’s income tax brackets, exemptions, deductions, and credits currently rise with inflation every year. Moreover, a majority of the country’s population already lives in a state that levies a “variable-rate” state gas tax, where the tax rate automatically rises on a regular basis.
Despite the merits of raising the gas tax, the disproportionate impact of the gas tax on low-income Americans is a real problem. But holding down the gas tax rate is an ineffective tool for preserving the progressivity of the U.S. tax code. Personal income tax provisions like the Earned Income Tax Credit (EITC) are far more helpful to low-income families than a low gas tax rate, and enhancements of such credits can be paired with gas tax reform to offset the regressive impact of the gas tax.

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