The Corner

Politics & Policy

The Tax Milton Friedman Supported and Bernie Sanders Won’t Raise

Senate Budget Committee Chairman Sen. Bernie Sanders, (I., Vt.) speaks during a hearing on Capitol Hill in Washington, D.C., February 25, 2021. (Susan Walsh/Reuters)

Bernie Sanders announced yesterday that he wouldn’t support any infrastructure bill that raises the federal gas tax, which currently sits at 18.4 cents per gallon.

By golly, we’ve done it. We’ve found a tax Senator Sanders isn’t interested in raising.

The gas tax has long created peculiar alliances and alignments in our politics. Plenty of economists we typically think of as libertarian or right-wing have expressed sympathy for the gas tax. Gary Becker and Bill Niskanen are among the gas tax’s cautious admirers. In 2006, Milton Friedman was asked if there were any taxes he liked. Here’s his response, from the San Jose Mercury News:

Yes, there are taxes I like. For example, the gasoline tax, which pays for highways. You have a user tax. The property tax is one of the least bad taxes, because it’s levied on something that cannot be produced — that part that is levied on the land. So some taxes are worse than others, but all taxes are bad.

(That last bit, “Some taxes are worse than others, but all taxes are bad,” is a pretty good approach to conservative tax policy.)

At the federal level, raising the gas tax has long been a bipartisan bugaboo. It hasn’t been raised since 1993. Democrats otherwise enthusiastic about raising the corporate tax or the income tax stop short of raising the gas tax.

Sanders’s argument is that the gas tax is regressive, which means that it affects low-income people more than high-income people. There’s a certain amount of sense to that. Someone making $100,000 per year isn’t going to feel the 18.4 cents per gallon as much as someone making $20,000 per year. Plus, in a country with low population density that has a car-based transportation system where many people don’t have non-car options, it’s good to keep the gas tax low. We don’t want to punish people for driving to work.

That being said, we also want to have enough money to fund highway maintenance. The federal Highway Trust Fund is on pace to run out of money next year. Keeping the gas tax the same since 1993 really means it has declined — inflation stinks that way. Eighteen cents went further in 1993 than it does today. The tax has also effectively declined as cars have become more fuel efficient. Using less gas means more value for drivers but less revenue for government.

A 2019 comparison from the Tax Foundation found that, adjusted for exchange rates, the U.S. has the lowest gas tax of any OECD country that has one. The OECD average was $2.24, which is much too high for the U.S. Many of OECD countries are in Europe. We don’t have a European-style transportation system, and we shouldn’t adopt European-style transportation taxes.

We have a transportation system similar to Australia and Canada. Those are also highly economically developed countries with low population density and transportation infrastructure centered around highways and airplanes. In the Tax Foundation comparison, Canada’s gas tax is next lowest above the U.S., and Australia’s is next lowest above Canada. We could afford to raise the federal gas tax by around 20 cents and be roughly on par with Canada and still be well below Australia.

But there’s another peculiar bipartisan alliance concerning the gas tax. Each state levies its own gas tax, and state-level Republicans and Democrats can often agree to raise it when they need the money. A sample of states that have raised their gas taxes in the past five years exhibits no discernable partisan pattern: Alabama, Arkansas, California, Illinois, Indiana, Montana, New Jersey, Ohio, Oklahoma, Oregon, South Carolina (where the GOP-controlled state legislature overrode the GOP governor’s veto), Tennessee, Utah, and West Virginia.

Our highways are one of the least offensive things the government spends our money on. The gas tax is one of the least offensive taxes. A simple CPI inflation calculation shows that 18 cents in 1993 has the same buying power as 34 cents today, so we could almost double the federal gas tax and it would be at roughly the same level, in real terms, as it was in 1993. There don’t seem to be any indications that the economy was crushed in 1993 under the weight of the gas tax, nor were segments of the population plunged into poverty over it. Even if the gas tax were 34 cents today, drivers would still be paying less, in real terms, than drivers in 1993 because cars are more fuel efficient today than they were then. Use less gas, pay less tax — the gas tax is fair that way.

Any time an economic policy has the approval of Milton Friedman and the disapproval of Bernie Sanders, you should, at the very least, strongly consider it. A moderate increase in the gas tax to fund highways is one of those policies.

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