Despite renewed economic confidence, few happy about a gas tax hike

With GDP on the rise, the unemployment rate falling, and gas prices lower than they have been in years, the public is finally starting to feel good about the economy. Despite the underreported fact that the labor participation rate is as low as it has been since 1977 and there are nearly 100 million Americans who are not participating in the labor market, those Americans who are working feel as good about the economy as they have since the mortgage market collapsed in 2008.

These factors have also led American lawmakers on the left and the right to agree that it is a perfect time for new taxes. Specifically, a new tax on gasoline.

Sorry, it’s not a “tax,” it’s a “user fee” for Americans who drive on highways with the aim of replenishing the depleted Highway Trust Fund. Just don’t think too hard about the millions of Americans who avoid highways or who use gasoline in tools like lawnmowers or gas-powered generators. For them, it’s no misnomer to call it a “tax.”

For the political class in Washington, the biggest impediment to imposing new “fees” on the American public is the fact that they are often paying attention. Given the prevailing economic conditions, lawmakers have some reason to believe that average Americans are finally looking the other way.

Well, Washington D.C. may be disappointed to learn that the public is still nervously watching lawmakers contemplate new taxes despite several years of anemic wage growth. According to a new Investors Business Daily/TIPP survey, Americans are deeply concerned about new “fees” on their gas consumption in spite of increasing public satisfaction with the economic recovery.

The IBD/TIPP Poll found that 59% oppose raising the gas tax, including 70% of Republicans and 65% of independents. In fact, there’s not one demographic, income or ideology group with a clear majority in favor of boosting the gas tax.

The poll also found stronger opposition to the gas tax hike among lower-income families, compared with those making more than $75,000.

Among the 30 percent of self-described Republicans warm to the idea of a tax on gasoline is the conservative columnist Charles Krauthammer. As he wrote in his syndicated column last week, he has advocated a hike on gasoline for years. He further observed that you can only get away with a tax hike of that nature when prices collapse, which is why it is the perfect time to pursue new, ahem, “fees.”

“The hike should not be 10 cents but $1. And the proceeds should not be spent by, or even entrusted to, the government,” Krauthammer wrote. “They should be immediately and entirely returned to the consumer by means of a cut in the Social Security tax.

The average American buys about 12 gallons of gas a week. Washington would be soaking him for $12 in extra taxes. Washington should therefore simultaneously reduce everyone’s FICA tax by $12 a week. Thus the average driver is left harmless. He receives a $12-per-week FICA bonus that he can spend on gasoline if he wants — or anything else. If he chooses to drive less, it puts money in his pocket. (The unemployed would have the $12 added to their unemployment insurance; the elderly, to their Social Security check.)

There is some merit to that proposal, but it is not on the table in Washington. The stated aim of a new gas tax would be to address the Highway Trust Fund deficit, except that a new revenue stream is unlikely to get that job done.

“In the past 15 years, federal highway spending has increased from $33 billion a year to $53 billion. The sharp increase in costs is driven in part by the deterioration of the federal highway system, which was mostly completed by the early 1980s,” Bloomberg’s Matthew Philips wrote.

“Even if it were raised, the gas tax will never be the source of cash it once was. Americans are driving fewer miles and doing so in increasingly fuel-efficient cars,” he continued. “Less gas consumption means less gas-tax revenue. With cities growing faster than suburbs and federal fuel standards set to rise more than 40 percent by 2020, revenue from the tax will continue to decline.”

Conservative Republicans in Congress have sponsored legislation that would reduce the federal gas tax to just $0.037 and transfer most highway funding authority to the states over the next five years. Rather than chase an elusive fundraising goal by hiking taxes to a point where an inelastic commodity like gas could end up being prohibitively expensive when the price of crude again rises, the conservative approach seems to be crafted with the most foresight.

Krauthammer is right in that it would be wonderful if Washington would scale back the fines imposed on those who pursue employment in the United States. That is not a proposal that anyone is entertaining. In the absence of serious tax reform, the kind that takes into account individual tax burdens rather than just those of corporate entities, all tax hikes should be off the table. At a time when the economy is just starting to show signs of life, new “fees” associated with consumption are an especially unproductive pursuit.