Funding Infrastructure Investment

The challenges of increasing the gas tax, and making sure infrastructure improvements are done right

We live in a mixed up, muddled up, shook up world. So should it surprise us that a Republican president backs a Democratic and Chamber of Commerce supported tax increase that compels a couple of conservative rabble rousing think tanks to pen an opposition paper on said tax? Probably not, but it’s still kind of funny, no?

President Trump rattled friendly feathers last week when he echoed a recommendation from the U.S. Chamber of Commerce to impose a 25-cents per gallon increase on fuel consumption, in order to pay for long needed improvements to American transportation infrastructure. The tax has remained at 18.4 cents per gallon since 1993, when you were much younger. (state taxes on gas have moved since then – just not the federal tax).  Americans for Prosperity and Freedom Partners, the conservative action groups, raced to their quill and ink sets, crunched some data, and found that the increased tax would have the biggest impact on households in places like Alabama, Alaska, Arkansas and even states that don’t start with the letter A.  The mixed up, muddled up, shook up world part: many of the states impacted the most by the Trump proposed tax are Trump supporting red states.

Interpreting the Data
The study compiles data from several sources, including total gasoline consumption for transportation in 2016 from the US Energy Information Administration. Then the authors do a couple of basic calculations, no PhD in stats needed: First they take that total consumption and multiply by the proposed 25 cent tax; then they divide that total by the number of households in each state to determine what the added burden per household would be. By this calculation, households in Alabama will see an annual $360 hit, Wyoming $380 and Mississippi leads the race, with households projected to be hit with a $390 annual burden. Of the top 10 states, only 1*, Delaware, went blue in 2016. (*Maine was in the top 10, but split its electoral delegates in 2016).

We can expand on the authors' analysis and bring in median income data, which amplifies the impact on some states.  Mississippi has the lowest median income of any state in the nation at about $41,000. A $390 burden is almost a full percentage point of annual income. Conversely New Hampshire has the highest median income, so their added tax burden of $332 will seem far less drastic.

When studying the data, I noticed something veeeeeery interesting. Alabama and Arizona guzzled a similar amount of gasoline in 2016. How could this be when Arizona has at least 2 million more people than Alabama and over 1 million more passenger vehicles registered? Digging a bit deeper into data from the Auto Alliance, I discovered a couple reasons why despite having significantly fewer vehicles, Alabama consumed a similar amount of gas to Arizona.

First, a higher percentage of passenger vehicles in Arizona are trucks (26% to 21%) which generally get poorer gas mileage than cars. Second, the average age of a passenger vehicle in Arizona is 11.9 years. In Alabama, the average age of a passenger vehicle is nearly two years older at 13.6. Both of these states are above the national average of 11.2 years. Older cars, again in general, are less fuel efficient. An increase in the gas tax will impact states with less fuel efficient vehicles more drastically.

Another interesting table from the Americans for Prosperity and Freedom Partners report is the ranking of states by what percent the new tax will increase their current gas tax burden. Alaska, Oklahoma and Missouri lead the way with their tax burden increasing over 70%. What this data shows us is that residents of state’s that already impose high taxes on gas usage won’t feel the increase as dramatically. Californians are already taxed 72 cents per gallon while Alaskans are currently taxed about 30 cents per gallon. An additional 25 cents nearly doubles the burden in the land of the midnight sun.

This is important because in places that already have a high tax, which in most states pays for infrastructure improvement anyway, state governments could offset the federal increase by lowering the state tax. Six out of the top 10 states with the highest tax burden voted blue in 2016.

Other Solutions
An alternative, or complimentary solution to raising the gas tax would be to enact or raise tolls on highways. (Is a toll at tax? Semantics!).  In places like Connecticut tolls were removed from the turnpike decades ago because they caused congestion which in turn caused pollution. But current toll collection technology like EZ Pass or SunPass is making the toll booth a thing of the past (which would have been really helpful for Sonny Corleone). Charging drivers for using state roads with this technology could help fund the improvement of transportation infrastructure. Rates could be lower for in-state drivers and the tolls could be temporary. A finite time frame would force states to use the revenue for its intended purpose within specific time parameters.

Wherever transportation infrastructure investment comes from, it is essential to avoid the same mistakes that were made with the establishment of the interstate highway system in the 1950’s and 1960’s. Highways through cities were designed to accommodate driving patterns of the day, with little thought about how usage of this infrastructure would grow in the coming decades. The result has been congestion, pollution and lost productivity due to the crippling commute times we see today.

The coming wave of investments in transportation infrastructure need to do more than improve existing roads, bridges and tunnels.  A future of ride-sharing, autonomous and electric vehicles, drone package delivery and personal use aircraft needs to be considered as guiding factors of infrastructure investment.

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