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Tags: gas | tax | roads | fix | economy

Raise Gas Tax to Fix Roads, Boost Economy

Raise Gas Tax to Fix Roads, Boost Economy

Peter Morici By Tuesday, 22 October 2019 08:19 AM EDT Current | Bio | Archive

The economy has slowed and needs a jolt - perhaps to avoid a recession. As in Europe, the Federal Reserve is discovering that interest-rate cuts have diminishing returns. That hands the ball to fiscal policy-and the president and Congress to cooperate-to avoid a reversal of historically low levels of unemployment.

The effects of the 2018 tax cuts on consumers are wearing off, just as worries about the trade war appear to be taking the steam out of consumer spending. Neither the corporate tax cuts nor lower interest rates have done much to boost business investment.

More tax cuts would add to the deficit and foreign borrowing but do little to build a more productive and competitive America. Roads, bridges and ports are straining to handle commuters and move goods, and the U.S. internet is in danger of falling behind the Chinese.

Federal and state governments spend about $450 billion a year on roads, bridges, mass transit, waterways and the like. That should be increased by at least $200 billion to catch up with decaying and crowded facilities and to address climate-change abatement and 5G.

Democrats and President Donald Trump can argue about the sources of rising temperatures but given the recent severity of storms, no one can doubt our coastal cities require hardening. Rural telecom carriers need assistance to ween from Huawei and ZTE equipment.

Inadequate facilities are imposing economic losses of at least $400 billion a year and more than 1 million jobs - more than what is needed in additional spending on repairs and upgrades.

U.S. fatalities per mile driven are about 40% greater than those in Canada and double those in Sweden, which is viewed as having the safest roads in the world.

Federal agencies like the Army Corp of Engineers and state and local governments have backlogs of projects but Washington has a tendency to micromanage by allocating money to specific purposes. That plays well with bureaucrats and activists - who almost universally delay worthy investments through the courts.

To give the economy a quick boost and do good for the long run, it would be better to simply appropriate an additional $200 billion annually, distributed according to present allocations among states and agencies. Don't earmark projects but instead require that the funds be spent within the year received, and audit projects for integrity in bidding and the like.

All this boils down to how to pay.

Last raised in 1993, the federal gas tax is 18.3 cents per gallon and is supplemented by a 24.3 cents diesel tax-those provide about $40 billion of the nearly $60 billon the Federal Highway Trust Fund spends. Congress appropriates supplemental money from other sources. About 28% of the fuel taxes are diverted to mass transit, bike paths, and other noble purposes.

After years of inflation and with oil prices so low, doubling those taxes, requiring higher transit fees and excise taxes on bicycles, tires and recreational equipment could add another $50 billion to what can be spent.

Democratic Senate leader Chuck Schumer - whose position the president cannot ignore - won't consider higher gas taxes without repealing some of the 2017 tax reductions for high-income households. Like it or not that's where another $50 billion can be found.

The other $100 billion can be borrowed because the boost to gross domestic product from $200 billion in spending on cement, bulldozers and internet routers should be about $250 billion. That would generate a lot of taxes, so in the end the increase in the deficit would be much less than $100 billion.

Last spring, congressional Democrats endorsed a $2 trillion, multiyear package - roughly in line with the amount proposed here. Trump initially agreed to look for a way forward but then said he would not negotiate on these issues while the congressional investigation into Russian influence continues.

The economy is at a genuine risk of recession - and that poses more of a threat to the president's re-election should he survive Congressman Adam Schiff's endless efforts to impeach him.

Trump would be well advised to advocate an immediate infrastructure package as necessary to avoid an economic downturn and unemployment, challenge Schumer and House Speaker Nancy Pelosi to cooperate and put the onus on the Democrats if the package is not passed and the economy tanks.

Peter Morici is an economist and business professor at the University of Maryland, and a national columnist. He tweets @pmorici1

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Infrastructure package is needed but it would take bipartisan cooperation
gas, tax, roads, fix, economy
Tuesday, 22 October 2019 08:19 AM
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