Dan Mitchell, who knows as much about California’s budget woes as anyone in the state, has some thoughts on gasoline taxation in the latest California Business Journal. One thing he doesn’t mention: the incidence of a gasoline tax falls partly on resource-owners, so the Iranian mullahs would have somewhat fewer petrodollars to buy bombs with if drivers paid more to the tax-man at the pump.
Want More Roads? Raise the Gas Tax
Daniel J.B. Mitchell
In 1947, California Governor Earl Warren faced a dilemma. California’s population had risen rapidly during World War II and was continuing to grow as returning GIs resettled in the state. Yet the state had neglected its infrastructure for almost two decades, thanks to the Great Depression and then rationing of construction materials during the War. In particular, roads were inadequate and congested. Only one limited-access road had been built — what is now the Pasadena Freeway — and that road had been expensive. Where would new money come from for all the freeways that were still on the drawing board?
Warren’s solution was to raise the gas tax and other motor vehicle related taxes, earmark the money for transportation, and build the freeway system. But there was opposition from a surprising source. Oil companies apparently could not understand that with more and better roads, they would sell more gasoline. So they heavily lobbied the Legislature to block the Warren plan. Governor Warren’s response was to go to the people, not with 30-second sound bites but with radio addresses, explaining the need for new roads and the money to support their construction. He spoke with newspaper reporters and editorial writers and pushed his contacts in the Legislature on both sides of the aisle. After a fierce legislative battle — during which the bill was almost killed — the gas tax was raised and freeway construction was begun. So successful was the California model that nine years later the federal government adopted the same idea — an earmarked gas tax for transportation — to build the interstate highways.
Oddly, an increase in the state gas tax — currently 18 cents per gallon — is the missing element in Governor Schwarzenegger’s new infrastructure plans. The existing tax on gasoline and diesel will bring in about $3.5 billion in the next fiscal year, according to the Governor’s estimates. He proposes instead $12 billion in bonds spread out over 8 years and some toll roads. But an increase in the gas tax should be part of any transportation plan.
Bond financing absent new revenue sources simply adds to state debt financing loads. An increased gas tax could fund the bonds and/or provide for roads on a pay-as-you-go basis. Toll collection technology is difficult to retrofit on existing roads, particularly in urban areas. In contrast, we already have a system for collecting the gas tax.
The gas tax is a user fee. Drive more, pay more. Drive a heavy gas guzzler which creates more road wear, pay more. Drive in congested hours when gas mileage is low, pay more. So the gas tax encourages efficiency and environmentally-friendly. Reduce your driving, drive a smaller car, use public transit, avoid peak hours, and you pay less. Governor Schwarzenegger is fond of pointing to Governor Pat Brown, a Democrat, who expanded California’s infrastructure in the early 1960s. He should also be looking at the earlier example of Republican Earl Warren, who understood that ultimately you get what you pay for.