Monday, September 28, 2015

Price of Gasoline, Taxes and Roads

Taxes suck! But lets face it, as much as we hate them, they are a necessary evil in our World today. They pay for basic services that we rely on so a way to levy the tax fairly to account for all levels of income is a constant debate.

One of the least applicable to the above statement is use tax, namely the gas tax. We will revisit this later.   The Federal Gas Tax was supposed to be used to maintain the transportation system but in the light of the Bridge collapse in Minnesota and the resulting revelation that dozens of other bridges were in danger of collapsing due to lack of maintenance; Something needed to be done.

Well, its been 8 years, a month, and a week ( well at least it was when I started writing this...)  since that Bridge Collapse killed 13 people and what has been done since then?  Well, common sense would dictate we raise funds by increasing taxes to lessen the backlog of repairs to insure such a tragedy does not happen, right? Well, that did not happen and what's worse is that raising the Federal Gas Tax really doesn't happen, period!

The Federal gas tax on gasoline is 18.4 cents per gallon, 24.4 cents per gallon of diesel and set in 1993 (inflation has gone up 64.6% by 2015) and seems like its not going to move and due, I am guessing, to intense lobby pressure by the biggest and the richest; Big Oil.

It also may seem that the Feds have tacitly decided to let States take over the job of increasing gas taxes (WA has increased gas taxes nearly every year since 2003 with the exception of the few years during the recession in 2009) but if that is the case, then new funding for the Federal Highway System needs to be addressed since our state taxes barely pay for state roads maintenance.

So the next question becomes "What is the right amount to charge and who should pay for it?" As mentioned above, use tax tends to treat lower income users unfairly.  But unlike most use taxes, (Cigarettes, Alcohol, Sugar) gasoline is a necessity to many especially here in Washington State where we have one of the worst public transportation systems in the country.  So a transportation budget of some sort is a requirement that ranks up there with food and shelter in importance and cost.
So the question remains; How do we do this without forcing lower income people to choose between gassing up or eating?  Its this question that we struggle with and a few approaches are being tested by various states.  Its a well accepted fact that the greatest strides in reducing our carbon footprint comes from enabling lower income people to reduce their footprint.  They tend to drive much more inefficient cars and they greatly outnumber the more affluent.

Washington State is one of the leaders in Electric Vehicle adoption but has so far been the realm of the rich. (I could cite a study published on Facebook this past week but the data is woefully dated) WA leads in Teslas per capita thanks to Microsoft and Amazon among other tech companies that call WA home.  Now this is not a completely bad thing. Someone has to get the ball rolling and like all new products, the introductory price is high compared to what the mainstream selling price will be.  I expect to see a 175 mile LEAF within the next 18 months  that will cost less than my first LEAF leased in Jan, 2011 and as strange as this statement may seem; we have current Tesla owners to thank for that.  So ya, its pretty much always the people with the expendable cash that leads the charge so the study is not really a valid one.  But the overriding issue is not the cost of EVs, its the cost of new cars, PERIOD.

During my brief stint as a car salesman, I found that the adage "you need money to make money" was still very much true. Used cars came basically in two flavors; lightly used, economic cars for $10-$20,000 or older, larger cars for under $9,000 partially due to the high price of gas at the time which was in the mid to upper 3's at the time.

Problem with this was young couples usually with at least one small child just getting started had poor credit or no credit so car loans typically ran 14-17% with some over 20% which meant only the larger inefficient car was their only real options for purchase. Contrast this to an older more established couple with responsible credit who could easily get car loans in the 6-8% range (or less) allowing them to get the smaller, newer more efficient car usually at payments lower than the young couple. This means that the younger couple will pay a much higher portion of their income for transportation making it that much tougher for them to get ahead.  Now one might say "This is how the credit system has worked for years" and I have to say "and look where it got us!"

Now, contrary to popular opinion, the value of the middle class is not shrinking every day but only because population growth has bolstered their numbers and a select few have enjoyed higher incomes but that is not where the issue lies. It is the growing support of the less fortunate that has become a burden we all must share and that burden is becoming an issue.  (Another reason is the re-defining of the Middle Class especially on the upper end of the income spectrum)

A recent study stated that the government bolsters the highway fund with about 69 Billion dollars across the board costing each tax payer over $1100 annually. This includes people who do not drive at all. Now raising the federal gas tax 50 cents per gallon would cover the budget shortfall with a little bit left over and right now with gas over $1 lower than we have been used to paying, there seems to be little reason to not do this. But there is no movement towards that end and as we all know, only dramatic events like 9-11 spurs Congress to act with any kind of expediency.

This increase would not even put back half of price cut gasoline has seen over the past year, so would it really be a burden to the lower middle class?  California thinks so and has proposed a graduated incentive program for zero emission vehicles based on income where conceivably, a family could be driving an EV for less than half the original sticker price.  This could be a good idea if done properly without gaping loopholes (think about how the "Cash for Clunkers" program panned out) that the well to do can slip thru.  This would also go a long way towards quieting EV dissenters over a recent study showing 90% of EV incentives going to towards people with high incomes.

Either way, I doubt there is a single solution and a combination of perks to lower incomes and perhaps and adjustable gas tax rate that is reduced when prices spike upwards but there is little doubt that what we are currently doing is failing on several fronts.


  1. petrol products should have a national health care tax levied against them

  2. This comment has been removed by a blog administrator.

  3. Dave, I enjoyed reading your article... I'm not a fan of Tax as it often is used for "other than intended" - but it is something we have to deal with...
    Thanks, Ray

    (I can't wait for the 2017 LEAF)

    1. I am not a huge fan of taxes either especially use taxes for "vital' services like gasoline. yes, it can be argued that driving a personal vehicle to work is a luxury and privilege but that is not always true. As mentioned in the blog; mass transit options in WA are nearly non-existent and useless for someone who does not have a typical 8 to 5 weekday commute. A flat rate is regressive in that for it to be high enough to pay for services, it tends to punish lower income households that can least afford the extra bill. Some companies like the one I used to work for gave out bus passes at 25% of face value and was a great option for those who could make it work but that was a small percentage in a 24/7 facility