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Who Dares to Touch the Third Rail?

December 26, 2012 By Conrad deFiebre, Transportation Fellow

Conventional wisdom these days holds that the fuel taxes undergirding our roads and bridges cannot be raised without nasty political repercussions. Such hikes would directly hit everyone who drives, including folks at the bottom of the income ladder, and everyone else indirectly in likely higher prices for goods transported by truck.

This has become the new third rail of American public policy, and those shying away include President Obama and Gov. Mark Dayton. Both want tax increases to be targeted solely at the wealthy, and it's tough to achieve that with levies designed as user fees for public infrastructure that nearly everyone relies on.

Their opposition ignores some hard facts. Because of their unique per-gallon rate structure, fuel taxes constantly shrink in the face of inflation and gains in fuel economy, producing rolling tax cuts on autopilot. Every other major tax—income, sales, property—automatically tracks with inflation.

After years of slippage in fuel taxes' buying power, only 42 percent of the $202 billion spent on U.S. roads in 2010 came from fuel or vehicle taxes, according to federal statistics. Somebody's non-user taxes made up the $118 billion shortfall, a figure that dwarfs annual nationwide subsidies for transit, intercity rail, walking and bicycling combined.

Remember, too, that $118 billion worth of free rides severely distorts transportation markets, propping up our dominant mobility choice even as it loses market share to other modes. To quote Ronald Reagan, the last prominent conservative to push through a fuel tax increase (nearly 30 years ago), when something stops moving, government subsidizes it.

Fiscal realists, however, are edging away from the conventional wisdom. The bipartisan Simpson-Bowles budget-balancing plan calls for raising the federal fuel tax 15 cents a gallon, just enough to cover Washington's current shortfall in transportation revenue. Even though the 18.4-cent federal levy on gasoline hasn't budged since 1993, Washington Post commentator Ezra Klein dismissed the proposal with two droll words—"Just saying"—in an op-ed illustrating, basically, that no one likes to pay higher taxes.

In Minnesota, Gov. Dayton's Transportation Finance Advisory Committee has urged increasing the state fuel tax of 28.5 cents a gallon by 40 cents over 20 years (pdf). Charles Zelle, Dayton's pick for state transportation commissioner, served on the panel and has voiced support for the increase. That attracted predictable broadsides from tax-averse state conservatives, who accused their own officials of tax banditry when the gas levy was raised for the first time in two decades nearly five years ago.

Never mind that, adjusted for inflation, Minnesota's fuel tax still falls more than 10 cents a gallon short of its buying power in 1988, even as we have more aging roads and bridges to maintain. It's also below the national average. The advisory panel's seemingly shocking proposal would only play catch-up and keep motorway revenue on an even keel going forward. A less controversial alternative could be a small immediate tax hike, followed by indexing to the rising costs of highway and bridge work.

The panel notes that fuel taxes are "less regressive than other fees" and, thanks to the Minnesota Constitution's requirement that they finance only "highway purposes," would restore fiscal health to state roads and freeways as well as county, city and township arterials. Minnesota fuel and vehicle registration taxes cannot be spent on transit or anything but roads and bridges.

Lately a few conservatives on the national scene have voiced openness to raising federal fuel taxes as an alternative to further deficit spending on transportation. Grover Norquist, of course, is already scolding them.

But maybe that third rail isn't so lethal after all. Third Rail is the name of my favorite blues band (the one my wife sings in), chosen because that's where the power is. Margaret Donahoe of the Minnesota Transportation Alliance reports that no politician in this state has ever lost an election for enacting a fuel tax hike. This goes back to the times when bipartisan majorities regularly raised the levy to meet needs.

A rigid conservative orthodoxy put an end to that decades ago. It's time for our progressive leaders to stop taking cues from the government-hating likes of Norquist and make the fiscally sane investments in building and (mostly) maintaining our infrastructure that Minnesota needs to move forward.

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  • Dale says:

    December 26, 2012 at 10:59 am

    Maybe it is time to look at a different option.  With hybrids, completely electric cars and increased fuel economy, maybe we should go more the toll road concept.  Check in (odometer reading) as you enter the state…pay, based on miles driven, as you leave the state.

  • norm hanson says:

    January 2, 2013 at 7:32 am

    Interesting information but I think that the real hooker here for many folks is not necessarily the fuel taxes but the constant fluctuation of gas prices at the pump for seemingly unknown vague reasons…or certainly at least for never explained very well reasons.

  • Bernice Vetsch says:

    January 2, 2013 at 9:27 am

    As someone famous has said, people can change. Six brave Republicans voted with Democrats to enact our first gas tax increase in a long time.  They were stripped of their committee assignments, were not supported by their party or Governor Pawlenty for re-election—and were not re-elected.  To show just how much a conservative town like Edina can change, however, one of the Brave Six ran as a Democrat in November and was elected to the Minnesota House.  It’s possible other voters have similarly come around to see the tax’s value to them. 

    I am glad to hear that a tax increase is being considered, but would like to add another item to the definition of “users” of our streets and highways.

    All of are “users” of the commodities that are shipped via truck to the shops and grocery stores we use. In that sense, we are all beneficiaries of the roads-highways-bridges infrastructure.  Perhaps the state could institute a new and progressive (low-income and elderly people use roads, etc., less) infrastructure support tax in addition to a modest gas tax increase. 

  • Gregg Harcus says:

    January 2, 2013 at 11:45 am

    Why not use toll roads and push mass transit. The technology exist for automating toll collections.

  • Bernice Vetsch says:

    January 2, 2013 at 12:35 pm

    Toll roads do produce revenue, but I think in the end drivers pay for the road over and over instead of paying for the road once and the much lower cost of maintenance until it needs replacement. 

    The specter of privatization would also cast its eyeballs over the ongoing revenue.  When Chicago was some millions of dollars short to meet its budget, it let a private firm pay them a few million in returned for 75-YEAR LEASE on their parking meters.  The private firm promptly doubled the cost to park at a meter and Chicago is stuck with them for over seven more decades. 

    When the goal is profit rather than public service, profit seems to win.

  • Mike Downing says:

    January 2, 2013 at 9:05 pm

    This conservative has no problem with increasing gas taxes as long as 100% is used for roads and bridges rather than boondoggles like LRT.