Now Is the Time to Raise the Gas Tax

It is never a good time for legislators and governors to raise taxes, particularly if you ever hope to run for public office again.  But taxes are necessary evils in societies that provide their citizens public goods, like roads, schools, parks, and national defense. Motor fuels taxes, more often called the gas tax, are particularly unpopular.  They are so unpopular in Maine that the Legislature indexed the tax to inflation, so that funds for highways would keep up with rising costs, and then promptly reversed course because of public pressure.

If we are ever to raise the gas tax, there is no time like the present.  According to the U.S. Energy Information Agency, the price of gasoline in “real” terms, corrected for the effects of inflation, is cheaper now than it has been for over a decade and cheaper than it was before the so-called energy crisis of the 1970s.  Americans are saving a lot of money that they were spending on gas a few years ago.

Inflation Adjusted Gasoline price

JP Morgan Chase Institute used credit card expenditure data to estimate how Americans were responding to sharply lower gas prices.  The average American was estimated to be saving hundreds of dollars a year.  Americans also appear to be spending most of these gas cost savings rather than saving them or paying down household debt.  The study suggests that 20% of the savings in gas costs are going to buy more gasoline and 80% are going to expenditures on other goods and services.

We should not be surprised that lower gas prices lead to buying more gasoline.  This is a fundamental assumption about human behavior for economists.  All else being equal, lower prices for a good or service lead to an increase in the quantity demanded.  (That is why the “demand curve” you learned about in principles of economics had a negative slope.)  Price has a powerful effect on how people behave.

The one category of things that do not get increased when gasoline prices go down is the public good.  All of the savings go to private expenditures, essentially making individuals richer, but not making us collectively richer.  That is the basic logic of why this is the best time to raise the gas tax.  When gas prices are lower is the time that a higher gas tax will have the least impact on private consumption.

Raising the gas tax now will have several public benefits.  First, it will allow us to begin to spend more on transportation infrastructure repair and replacement.  In my earlier blog, Maine Roads Stink, I showed how gas taxes are fairer and less expensive ways to fund transportation infrastructure than the ever popular general obligation bonds Mainers love.  (I will be voting against Question 3 on the November ballot.)

Equally important, higher gas taxes send a signal to consumers about the adverse spillover effects that come from burning gasoline in our cars, the topic of another one of my recent blog posts.  Gasoline burning is the primary cause of smog production (from a mechanism atmospheric scientists call tropospheric ozone production).  Burning gasoline is a significant contributor to carbon dioxide emissions that are the largest contributor to human-caused climate change.  Gasoline consumption is part of the global trade in fossil fuels that increases American diplomatic and military costs to secure our access to energy in a form that is most useful to us.  Higher prices will equal less gas purchased and thus fewer adverse effects.

A gas tax increase should be just one part of a broader system of taxes on carbon-based fuels.  The clear signal that it sends to consumers will certainly result in less consumption and therefore cleaner air and less climate change.  And when gas prices are this low, it is clearly the least painful time for Americans to begin to deal with what is the greatest danger to our future.

Signing fossil fuel divestment petitions (I don’t) and supporting alternative energy strategies make us feel good while we continue, or increase, our behaviors which are at the root of the problem.  Let’s take some of the savings from lower gas prices and spend them so that future generations can enjoy something like the lives we enjoy today.  An increase in the gas tax will allow us to do this.


Mark W. Anderson

About Mark W. Anderson

I am proud to be a Mainer, born in Caribou and schooled at Brewer High School, Bowdoin College, and the University of Maine. I am grateful for a 35 year career at UMaine, the last decade in the School of Economics.