Leadership on the Gas Crisis: Repeal the Tax?
Jim Blair

The Crisis

Since the price of gasoline has risen in the last few weeks, the Republican "leadership" has tried to get the jump on Clinton and the Democrats in dealing with the situation.

Clinton has started to release oil from the strategic petroleum reserve (there to provide emergency petroleum in case of a crisis), and has had the Justice Department investigate the oil companies. Dole, Gramm and the Newt clamor for a repeal of the 4.3 cent/gallon gas tax increase passed as part of the famous deficit reduction package of a few years back. Clinton is eager to sign the repeal.

The Context

Gasoline prices in the US are about one half or less than those of Europe. The main reason is that over there they tax gas about enough to offset the expense of providing for cars: road building and repair, etc. In the US the government at all levels (federal, state, and local) provide what amounts to a massive subsidy to drivers. The US government, starting during the Eisenhower administration, "invested" about 3% of the GNP each year into the Interstate Highway System for a decade. A modest gas tax of a few cents/gallon was collected to go into a "highway trust fund", mostly for road repairs. That rose to 14 cents by 1993, and then the 4.3 cent increase in question was added. Each penny per gallon brings in about a billion dollars a year of revenue. This more or less pays for repair and modest expansion of the system. The 4.3 cent increase was not to be used exclusively for roads but was for reduction of the federal deficit, currently projected to be 165 billion dollars-that is, higher now than during most of the Reagan years.

Every so often since the 50's an extra highway construction bill has been passed. President Reagan vetoed a $150 billion highway bill that Congress passed over the veto, and Bush signed one nearly as big. These both were funded not from the gas tax but from borrowing.

As a result, the US has the least efficient transportation network of any industrial nation. We produce about 30% of all the CO2 released (with about 5% of the world population). We drive big cars and most workers commute to work one person per car. Gas prices in the US are much lower now than during the late 1970's, and if corrected for inflation are lower than during the 1950's. And see the CO2 items on the environment section of my web page for the implications of our release of that gas.

Most states barely collect enough in gas tax to build and maintain roads, even though the federal government pays 80% of major highway projects. Cities typically use property tax money to build and repair streets, and those who park in city ramps are not expected to pay the cost of them. See my attached letter to the University of Wisconsin parking director. (I hope to put that ISTHMUS article on my web page some day. In the meantime, read 'Price and Pollution' which is there).

Real Leadership: Socialism or a free market?

The difference between a market economy and socialism is this: under socialism, the government provides goods for "free". The user does not have to pay the cost, the entire society does. This fails since there is no incentive to conserve (to each according to his need). In a market economy, individuals are expected to pay for what they use. The roads have become jammed with cars because they are our modern "commons". See "The Tragedy of the Commons", on my web page. The time Americans spend waiting in traffic is a result of the same factors as the time people spent waiting in long lines in the Soviet Union and Eastern Europe during the Communist rule.

I will give another example. In Israel there are solar hot water heaters on almost every house. In Egypt I saw not a single one. Why?

Well, in Israel electricity is expensive. It is generated from (imported) oil. But in Egypt, the government built the massive dam at Aswan (with much help from the USSR), and then gives electricity away for practically "free". So why spend money on solar?

Since in the US, the government builds the roads and lets people drive on them for "free", (except for that minor gas tax), we have socialism in transportation. Trains and mass transit can't compete with what the government gives away. In a market economy, the user would pay. Toll roads would be one way, but a gas tax that actually covered the cost of building and repairing the highways and city streets would be more practical.

While Dole and Clinton try to out pander each other, recall that Gary Hart, Paul Tsongas and Ross Perot were willing to tell it like it is: the gas tax should go UP a lot. 50 cents a gallon increase was suggested several times. There is no "free lunch": if we want roads, those who drive on them should pay for them. Who will have the nerve to say it: the problem with gasoline in the US is not that it is "too expensive" but that it is too cheap! The gas tax is much too low!

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