Wednesday, January 30, 2008

Do We Need A Gas Tax Increase? Part 3

In the first two parts of this series I offered some background information on the gas tax, our infrastructure needs, and some of the proposals that have been put forth to increase the tax. In this entry we will consider some of the alternatives to a gas tax increase.

The first alternative is to do nothing. This is fundamentally flawed in my view because investing in transportation has many benefits. I would like to be able to take the Metro to Dulles, spend less time in traffic, and see local transit projects built. There is also a case to be made for the economic benefits of public works projects, which create jobs in the short term and improved economic efficiency in the long term.

Another alternative is more efficient spending. Conservatives have pushed a CATO Institute idea
proposing just that. While better use of taxpayer dollars is always a good idea, CATO also assumes that many of the projects transportation dollars are used for are illegitimate, such as transit and trails.

The dissenting voices on the National Surface Transportation Policy and Revenue Study Commission proposed increased congestion pricing and toll roads, largely managed by the private sector. Congestion pricing and toll roads do not mitigate the regressive tax issue, as many working people do not have a choice in what time of day they go to and from work. There are also large tradeoffs for having the private sector own or manage these types of projects. For example, some road privatization agreements in other states have included non-compete clauses that do not allow state governments to improve roads in the area of a privatized one. But even if privatization does occur, many projects may not be attractive enough to warrant private investment and might need government assistance.

Another alternative is to raise other taxes and put that money towards transportation. Maryland did this during the Special Session by designating half of the sales tax increase for transportation. The sales tax shares the regressive problems of the gas tax, but linking transportation to other, more progressive taxes could have merit.

In my view, the need to invest in transportation speaks for itself, so it is just a question of how to pay and when. No one wants an increase in the gas tax, but an increase at the state or federal level makes sense. The needs are huge and must be met. Also, the historical link between the gas tax and transportation funding has a proven track record. It helped us build our highways, bridges, transit systems, and more. Now it can help us rebuild them. However, there are two caveats to any increase. First, an increase should come only after it is clear that the economy is out of the recession we may be sliding into, if we are not in it already. Second, a gas tax increase should be coupled with a refundable tax credit for the lowest earners.