Chamber of Commerce Misguided on Gas Tax

February 1, 2018

The U.S. Chamber of Commerce is urging policymakers to pass an infrastructure package. Some of the Chamber’s proposals make economic sense and have bipartisan appeal, such as speeding the permitting process for construction projects.

But one Chamber proposal makes no sense and has little political appeal: raising the federal gas tax by 25 cents per gallon, which would more than double it from the current 18 cents. The Chamber’s case for a federal increase in infrastructure funding—as opposed to state-level increases—seems to include little more than polls purporting to show Americans are not against a federal “user fee” increase.

The Chamber undercuts its argument for a federal increase in this advocacy piece:

To rebuild and expand our roads, bridges, and transit systems, it is time for a modest increase in the federal motor vehicle user fee. The user fee was last raised in 1993. Since then, inflation has eroded nearly 40% of its value … Since 1993, 39 states have raised their own state motor vehicle fuel user fees. It is past time for the federal government to do the same. Specifically, we call on Congress to raise the user fee by 5 cents per year for five years for a total of 25 cents and adjust the fee to inflation thereafter.

If 39 states have proactively raised their own gas taxes, why does the federal government need to? Apparently, states are quite capable of balancing the costs and benefits of highway investment, and of making infrastructure decisions based on their own needs. As I discuss here, the average state gas tax rate increased from 21 cents per gallon in 1994 to 33 cents today.

Florida’s population has grown 47 percent since 1994, which has presumably increased the demand for highways. The state responded by raising its gas tax by 26 cents over the period, according to API data. Meanwhile, the population of Kansas has grown just 13 percent, presumably creating just a modest increase in highway demand. Kansas raised its gas tax 5 cents over the period.

Federalism works! States are making different choices based on their own needs. If Chamber of Commerce members in Florida favor higher gas taxes for better roads, wouldn’t they rather their tax money stay within the state, rather than going to D.C. and being re-routed to, say, Kansas?

Advocates of increased federal taxing and spending for infrastructure never seem to tell us the advantages of a centralized approach over a decentralized approach. Indeed, there are many disadvantages of centralizing the financing of, and control over, the nation’s infrastructure.


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