Tax Issues

Cutting Regressive Fuel Taxes Is The Best Way To Cut Pump Prices And Help Working Americans

ALEXANDRIA, VA -- If politicians could re-write the Webster's Dictionary, they'd probably define the adjective "complex" as "a way to describe a problem with an obvious solution we'd rather not try." So it is with the current explosion in fuel prices.

Politicians thunder that "complex problems" need to be addressed, such as relations with the OPEC oil-producing cartel, or exploration in environmentally sensitive areas, or even the resurrection of costly old federal schemes to produce synthetic fuels. But the most direct and yet untrodden path toward resolving the problem is clear -- and wide enough to carry a fleet of 18-wheelers: why not cut federal fuel taxes, by 10 cents to start?

More than many industrialized nations, American commerce depends upon stable transportation costs, especially for roads. Although some say that energy policies are solely to blame for current and past price swings, a more responsible culprit has actually been tax policies.

Pre-tax fuel prices often fluctuate up or down during any given period, but historically, post-tax prices have been moving steadily upward for at least two decades.

From 1990 through 1999, the pre-tax pump price of gasoline barely changed -from 88 cents per gallon in 1990 to 86 cents as of last November.

Over that same period, state and federal gasoline taxes rose by more than half, from 27 cents per gallon to 43 cents. This imbalance aside, there are other reasons to cut fuel taxes:

  • The 1993 Omnibus Budget Reconciliation Act created a new 4.3-cent-per-gallon fuel surtax for "deficit reduction." This tax has continued, despite the fact that the federal budget is now in surplus, and will probably remain so for at least the next ten years.

  • The Congressional Budget Office estimates that this year's "on-budget" surplus (not counting the so-called "Social Security surplus") will total $23 billion. With $34.3 billion in fuel taxes allocated to the Highway Trust Fund this year, slashing the 18.4-cent gas tax and the 24.3-cent diesel tax by 10 cents won't imperil any current programs and won't consume any funds set aside for Social Security reform.

  • A recent study by the Tax Foundation showed that excise taxes are five times more burdensome for lower-income households than they are for wealthy households. By cutting fuel excises, both Bill Clinton and his "compassionate conservative" critics in Congress could take credit for a tax cut that particularly helps low- and middle-income Americans.

A few critics, among them self-interested road builders, whine that cutting fuel taxes would starve the Highway Trust Fund of money it needs for road improvements and "cost jobs." But Congress could easily replace the "lost" revenues by simply appropriating part of the budget surplus into the Trust Fund. And, the notion that lightening the load on the private sector "costs jobs" seems silly to leaders like Connecticut Governor John Rowland, whose grateful constituents will prosper if his proposal to cut state gas taxes becomes law.

Congress and the President should work on top-to-bottom reform of our Byzantine Tax Code. And, a new transportation-funding system that relies on private construction and local user fees should eventually replace the current patchwork of subsidies and ill-targeted excises. But until then, elected officials can still show they give more than a plug nickel for taxpayers, by cutting a dime from the federal fuel tax rate.

Pete Sepp is Vice President for Communications with the 300,000-member National Taxpayers Union, a non-partisan citizen group founded in 1969. Readers may write him at: NTU, 108 N. Alfred Street, Alexandria, VA 22314



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