Low Gas Prices Provide Infrastructure Upgrade Opportunity

By and

The recent plunge in oil prices over the past few months has sparked much debate over whether or not state and federal governments should increase the gasoline tax in order to raise revenue for much needed highway construction projects.

The current 18.4 cents per gallon tax is used to fund the Highway Trust Fund that provides for highway and bridge replacement and repair costs.

The problem is that in recent years, vehicles have become more and more fuel efficient.  While less consumed gallons means less revenue for the Highway Trust Fund, the wear and tear on the infrastructure continues.

Gasoline prices have fallen over 40 percent in the past six months. The average retail price of gasoline in the United States for the week ending January 5, 2015 was $2.308 a gallon.  That price is nearly $1.50 less than the $3.778 consumers paid at the end of June 2014.

Meanwhile, the Highway Trust Fund is expected to run out of cash in May 2015.  At the same time, the country’s transportation infrastructure is in precarious condition.  The American Society of Civil Engineers gave the nation’s road and transit system a grade of a D in 2013. Bridges nationwide did not fare much better, earning a C+. While the estimated, near $1 trillion dollars, needed to upgrade the interstate system may seem high, the current inadequacies of the system costs tax payers billions in delays, auto repair costs and extra fuel expenses, not to mention accidents and traffic fatalities.  

As the funds pool runs dry, Congress is searching for money since it last ducked the issue this past July by obtaining $10.8 billion from pension tax changes, customs fees, and money reserved for leaking underground fuel storage repairs.  Congress has been employing short-term approaches since 2008 through a series of patch-work and temporary fixes while hoping for a politically achievable long-term solution.

Enter the recent plunge in gas prices.  While a 2013 poll by research firm Gallup showed that two-thirds of Americans oppose raising state gas taxes to fund infrastructure projects, gas prices have since plunged dramatically, suggesting that such a measure might now harbor a majority of consumer support. 

Elected officials from both parties now see this as an opportunity to strike while the iron is hot.  Still, they are treading cautiously, realizing that those who support the measure could receive backlash in the case of a surge in prices later on. 

Nonetheless, consumers should be aware that Congress need only raise fuel taxes by only 10 to 15 cents a gallon to meet all of the obligations of the Highway Trust Fund.  With this, drivers would still enjoy $2.45 per gallon if prices remained stable.  Moreover, that rate would more closely approximate the 18.4 cents per gallon that consumers have been paying since 1993 when adjusted for inflation.  Some lawmakers have been proposing similar inflation inclusive ideas.

 In the Senate, Tennessee Republican, Bob Corker, and Connecticut Democrat, Chris Murphy, have co-sponsored a bill to raise the national gas tax by 12 cents over the next two years and allow it to index for inflation.  The upside here is that Congress would not have to vote again to raise the tax down the road.  On the other hand, the marginal tax rate increase would eat into consumers’ disposable income, something that many analysts credit for their recent, brighter, economic outlook.    

In conclusion, the recent dip in gas prices may suggest a rare opportunity to raise the gas tax in order to raise revenue for much needed infrastructure repairs.  Critical infrastructure funding deserves a long-term funding solution.

Article Citation List