The Corner

The Worse Type of Bipartisanship

The Hill reports:

A bipartisan pair of senators has urged President Obama’s debt commission to consider raising the gas tax to pay for infrastructure projects.

Sens. Tom Carper (D-Del.) and George Voinovich (R-Ohio) have written to the chairmen of the National Commission on Fiscal Responsibility and Reform advocating for a 25-cent per gallon tax increase. […]

The lawmakers suggest that 10 cents of the tax increase should go to deficit reduction and 15 cents should go to funding transportation infrastructure improvements.

It is one of many tax increases Congress is likely to consider in the months ahead as it wrestles with finding ways to reduce the nation’s $1.5 trillion budget deficit.

I did a quick back-of-the-envelope calculation of what this tax hike would bring in revenue. Based on fuel usage data from the Federal Highway Administration, the tax would raise about $43 billion, and $17.2 billion would be dedicated to deficit reduction.

Also, the article reports that, once fully implemented, the tax would cost drivers $156 per year. The number of drivers licensed to drive cars in the United States, according to the December 2008 highway statistics reflecting 2007 data, was 205,741,845. Extrapolating the number of “car” drivers from this figure using the ratio of licensed drivers to private and commercial motor vehicles registered means there are approximately 175 million people driving cars in the U.S. There are approximately 247 million registered motor vehicles in the United States. So, in the best scenario, the tax could raise as much as $38 billion and $27.3 billion, and between $15.2 billion and $10.9 billion would go to deficit reduction.

It’s a drop in the ocean. Keep in mind that the federal government will be spending $42 trillion over ten years.

More importantly, they want to raise $0.10 for deficit reduction while $0.25 would go to more spending. Seriously? This goes to the heart of the current problem. We don’t need to raise taxes; we should cut spending. When families are in trouble financially, they don’t try to fix their problems by going out to dinner. They cut their expenses — and not just their daily trip to Starbucks. They stop going on vacations and they make fewer trips to the mall. The federal government needs to do the same.

It’s a bad idea anyway. The economics is quite simple: What you need to generate tax revenue is a thriving economy. Taxing something means raising its cost, and raising its cost means that you will get less of it. If the government taxes the economy heavily, it will slow the growth that it needs to generate tax revenue.  That’s why you can’t tax your way out of it.

In addition, as economist Steve Horwitz explains, one of the consequences of the housing crisis has been that people are tied to houses they can’t sell. It means that they aren’t able to move to a different location or another state to get a new job. This reduction in labor mobility explains in part the unemployment stagnation. If that is the case, increasing the tax on gasoline will increase even more the cost of mobility, which isn’t a good idea.

Here is a good bipartisan idea: Congress should repeal any piece of legislation that was passed last year on party lines only. I can think of a few.

Update: Thanks to all the  readers who educated me about gasoline consumption in the US, I have corrected a mistake in my original post and replaced the numbers $43 million and $17.2 million by $43 billion and $17.2 billion. I didn’t realize that the government data about the number of gallons consumed in the US was in 1,000 of gallons (is it the every data about gasoline?). I thought the final numbers were small, but I have to admit that I had no clue of how much gasoline was consumed in the US, not even a range. In any case, that’s why I provided a second calculation based on how much the senators said the programs would cost drivers to estimate the tax revenue from the tax.


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