Gas Tax Holiday
by Timothy Carney
Issue 107 - May 7, 2008

With gasoline prices averaging over $3.38 for a gallon of regular, Sen. John McCain has proposed a summertime gas-tax holiday. It’s probably the most eye-catching and voter-pleasing plank in the economic platform the presumptive nominee unveiled on Tax Day, but it certainly has its detractors: those on the receiving end of the gas tax.

Every dime Americans pay into taxes ends up in someone else’s pocket. In the case of gasoline taxes, the beneficiaries are mostly the corporations that get state and federal contracts for road building and repair. Sure enough, one of the first objections to McCain’s gas-tax holiday came from the American Road & Transportation Builders Association (ARTBA).

The federal fuel excise tax adds 18.4 cents to every gallon of gasoline you buy. That money does not go into the same general fund as your income taxes; it instead is placed in the Federal Highway Trust Fund (FHTF). FHTF money for the most part is spent on highways. To a degree, this resembles a user fee: People who use the roads are paying for the roads.

Of course, people who drive only on local roads pay the gas tax, too, even if they don’t use the highways. Tolls would be a direct way to ensure that highway users paid for highway building and repairs, but ARTBA and contractors in general oppose tolls.

ARTBA’s president, Peter Ruane, last summer wrote a letter to The Wall Street Journal opposing a plan by many governors to shift road management over to private companies that would institute tolls.

But high gasoline prices get drivers pretty upset. Democrats try to capitalize on this anger by assailing oil companies for their “windfall profits.” But in many parts of the country, the government pockets more from each gallon you buy than Exxon does.

The average state gas tax is 15.5 cents per gallon, and the highest is more than 32 cents. Georgia’s 7.5 cents-per-gallon tax is the lowest, meaning all Americans are giving at least 25.9 cents per gallon to state and federal governments, comparable to the oil company’s per-gallon profit.

For McCain, promising a cut in gas taxes is a good way to gain media attention, address the struggles of middle-class families in this economic slowdown, and build his bonafides with skeptical tax-cutting conservatives.

ARTBA, whose members see the highway trust fund as the source of their revenues, immediately issued a press release warning that “this proposal would have severe negative economic impacts,” which is kind of like your children objecting that a cut in allowance will have “severe negative economic impacts.”

Reading through ARTBA’s lobbying filings, you detect an ideological consistency. The association “lobbied for increased airport infrastructure investment through rai[s]ing the passenger facility charge;” “urged Congress to fully fund the federal highway and transit programs and increase aviation investment;” “urged members of Congress to provide increased resources...;” and “urged [committees] to generate new revenues....” The consistent philosophy here is tax and spend.

The rest of the industry is the same. The American Public Works Association, whose members are contractors and government agencies, held a Web seminar titled “Innovative Funding — Getting to the End of the Rainbow.” Among the “innovative funding techniques” pushed in this program were “street fees” and sales taxes.

Unfortunately for taxpayers and drivers, McCain’s proposals don’t threaten these tax bandits too much. He called for a one-time suspension of the tax, from Memorial Day to Labor Day.

After complaints from the highway lobby and liberal groups that cutting gas tax would deplete their slush fund, McCain quickly called for that FHTF hole to be filled by general revenues — the income taxes you paid last month.

Gas taxes are among the irritating to drivers but among the most coveted by the tax bandits: politicians who like distributing the money and labor unions and contractors who enjoy receiving it. When McCain proposed even a minor tweak to the scheme, he felt the heat from the vested interests.

We may need new highways, and of course highways always need repair. It’s better that drivers pay for these roads than non-drivers, but a more demand-driven system — such as tolls — would give us the roads we want. Instead, we get the roads the politicians and the road builders want.

Timothy Carney is a columnist with the Washington Examiner, where this first appeared.