Sen. Robert Menendez, D-N.J., on Tuesday proposed suspending the federal gas tax for two months. He wants to replace the revenue by lifting oil industry tax breaks. Gas price hikes are caused by oil industry greed, he says.
“Last year the big oil companies hiked gas prices and blamed an act of God, but it’s crystal clear that the current spike in gas prices is at least partly due to an act of greed,” he said.
Well, not really. The gas companies have not conspired to increase demand in China and India and put a lunatic in charge of Iran. What is crystal clear is that taxes make up a much larger percentage of the price of gasoline than oil company profits do.
The federal gas tax was first imposed in 1932. It was only 1 cent per gallon, and it was supposed to be temporary. It wasn’t. From 1959 to 1981 it stayed at 4 cents a gallon. But in 1982 the federal government got hot for mass transit. Since then the federal gas tax has risen from 4 cents a gallon to 18.4 cents, or 360 percent, the Tax Foundation has noted.
The American Road and Transportation Builders Association reports that since 1997 only 84 percent of the gasoline tax has gone to the Highway Trust Fund. Fifteen 1/2 percent goes to mass transit, and another half-percent goes to other trust funds.
According to the Energy Information Agency, almost a quarter of the price of a gallon of gas goes to taxes. Refining costs and oil company profits combined make up less than 20 percent. (Those percentages will be slightly smaller now, with prices having risen so fast in the past month.) But the EIA does not include some local taxes in that count. The Tax Foundation and the American Petroleum Institute found last fall that taxes accounted for 45.9 cents of the cost of each gallon of gas. That’s a United States average, the total differs state to state. It ranged from 26.4 cents in Alaska to 60 cents in California.
Just three years ago, Congress was considering raising the federal gasoline tax from 18.4 cents a gallon to 24.4 cents. Two years ago, Rep. Don Young, R-Alaska, proposed raising the gas tax by 5.45 cents a gallon to 23.85 cents. He wanted more money for pork. Now, of course, such a proposal would be political suicide.
It is telling that Rep. Young, the master of road pork, was behind the push to hike the gas tax. The tax is a big source of pork-barrel appropriations. It could be cut if Congress were willing to part with some transportation-based earmarks.
In fact, President Bush could help his sagging popularity by proposing to cut the federal gas tax as part of his newfound fiscal responsibility. Better yet, he could propose a permanent cut coupled with a short-term, say six-month, suspension.
Imagine the President insisting that Congress cut the federal gas tax by, say, 5 cents a gallon, or just over 25 percent, and suspend the full tax for six months. The Republicans could pass it, effective immediately, and the President could go on television and tell the American people to check the price at the pump the next day. If it isn’t lower by 18.4 cents, then the station is gouging them.
Democrats already are making political hay out of high gas prices. The GOP could erase the issue by suspending and cutting the federal tax and making similar pushes at the state level. The move also would help educate Americans about the hidden taxes that increase the cost of everything. Republicans could parlay it into a general anti-tax movement.
Of course, Republicans would have to get serious about cutting spending and earmarks before they could do this, so it’s never going to happen.