Embarrassing....

Road Hazard: How the ‘Embarrassing’ Gas Tax Impasse Explains Washington

The main federal fund for roads and bridges runs at a deep deficit. If even red states can raise the gas tax, why can’t Congress? 

by Alec MacGillis

In 1993, the Dow Jones industrial average was still well under 4,000, the best-selling car in the country was the Ford Taurus, and the average cost of a Major League Baseball ticket was under $10.

That was also the year that Congress last raised the federal tax on gasoline.

The gas tax pays most of the tab for America’s federal highway program; it’s what we rely on for new highways and for the bridge repairs that keep us safe. Those costs go up every year, but the tax remains stuck at 18.4 cents per gallon. In fact, it’s effectively going down: since it was last raised, those 18.4 cents have lost more than a third of their value to inflation, and at the same time drivers with fuel-efficient vehicles have been buying less gasoline, further reducing the federal take.

As a result, the main U.S. spending account for infrastructure has fallen deep in the red, and the gap gets worse every year. The government, through a series of funding tricks, keeps the Highway Trust Fund on life support with short-term emergency patches. The latest infusion expires at the end of the month, and the argument about how to fix it is coming to a head this week.

The uncertainty has frozen major projects around the country, from the widening of Route 1 in Delaware to the Kalispell bypass in Montana, while maintenance and repairs are long overdue on thousands of roads and bridges dangerously near the end of their expected life spans.

That Congress can’t fulfill such a basic purpose of government stands out as a signal example of Washington dysfunction. Unlike some other stalemates, though, this one can’t be blamed on special interests at loggerheads. Nearly all the lobbies that take an interest are in favor of simply increasing the tax — big business, the road builders, the unions, even the truckers. Lobbies that might oppose an increase, notably the oil industry, have invested relatively little in the debate.

Instead, it’s an example of those big decisions that get trapped in a kind of ideological crevasse. Because it’s a tax, raising it has been decreed out of bounds by a combination of anti-tax orthodoxy among conservative Republicans and a fear of political backlash that spans both parties.

Still, there may be a way out of the trap. A slew of states around the country — including some led by conservative Republicans — have managed to raise their state gas taxes to address the transportation burden without triggering the fury of taxpayers. The contrast is an unflattering one, says former Pennsylvania governor Ed Rendell, a Democrat and a leading proselytizer for infrastructure spending.

“If the gas tax could be voted up or down on a secret ballot, it would get 285 yes votes in the House and 85 or 90 in the Senate,” says Rendell. “Everyone knows we need new revenue, everyone knows we can’t let the trust fund go broke … Everyone knows this is one of the most embarrassing chapters in the history of the U.S. Congress.”

What’s gone so wrong?

It sounds strange now, but the gas tax was born and built up under Republican presidents. The U.S. government has been picking up a part of the highway tab for nearly a century — since 1916, when, in an era of Model T’s bumping over rutted country lanes, the bluntly named Good Roads Movement gave rise to a law providing federal money for any rural routes used for U.S. mail. Fuel taxes started around the same time, but only at the state level.

When the federal government adopted its own penny-per-gallon one in 1932, under President Hoover, it was intended for deficit reduction, not roads. It was only when the tax was raised to 3 cents under President Eisenhower in 1956 — with an additional cent added on in 1959 — that it was targeted for the new interstate highway system and the Highway Trust Fund that would finance it.

In a country that loves big cars and views cheap energy as a national birthright, the gas tax was never going to be beloved. After several failed attempts to raise the tax in the 1970s as a means to spur fuel conservation and fight inflation, it was left to Ronald Reagan, of all people, to push through the next increase, in late 1982.

With the economy still sluggish after Reagan’s steep income tax cuts in 1981, “they were facing $200 billion deficits as far as the eye could see … and the administration was desperate to find some way to close that gap,” recalls Kenneth Schwartz, a career employee in the Office of Management and Budget.

Just before the 1982 midterm election, Reagan had ruled out a gas tax increase “unless there’s a palace coup and I’m overtaken or overthrown.” But shortly after the election, he and his budget director, David Stockman, settled on a five-cent increase in the gas tax (or “user fee,” as Reagan preferred to call it) proposed by House Ways and Means Committee Chairman Dan Rostenkowski, the Illinois Democrat. The increase, Reagan said, would be “less than the cost of a couple of shock absorbers.”

The proposal had bipartisan backing from Hill leadership. In the House, well over half of Republicans voted for it. The Senate passed it 54-33.

That political landscape was already shifting when Washington took up the tax again less than a decade later. As part of George H.W. Bush’s big deficit-reduction package of 1990 — in which he violated his “read my lips” pledge — the gas tax was raised by another nickel. This time, it didn’t win over a majority of House Republicans: just over a quarter of them voted for the increase. The partisan divide ratcheted several notches further three years later when President Clinton, after initially proposing a broad-based “BTU tax” on all forms of energy, included a 4.3 cent gas tax increase in his 1993 deficit-reduction package. It passed without a single Republican vote.

The following year brought the electoral earthquake of 1994 that made Newt Gingrich House Speaker. Two years earlier he’d been the only Republican in Georgia’s 10-member House delegation. Now he was one of eight. Among the lessons drawn by Clinton and other Democrats from this wipeout was a deep wariness about fuel taxes.

The lesson was no less clear to Clinton’s successor, whose father had been pilloried among Republicans for the 1990 increase. Schwartz says that it was impressed on him and his OMB colleagues under President George W. Bush that a gas tax increase was not to be discussed.

While the flow of money from the gas tax was flat-lined, spending wasn’t. Congress kept pressing for bigger highway bills. “They weren’t raising the revenues,” says Schwartz, “but they were raising the authorizations.” After 2000, lawmakers turned to one-time budget gimmicks and spending from general revenues to plug the gap, thereby driving up the deficit.

Liberals have a handy culprit to explain why the gas tax hasn’t budged since 1993: Grover won’t allow it. Republicans, the story goes, have developed such fealty to the anti-tax pledge rolled out by Grover Norquist’s Americans for Tax Reform in 1986 that raising the rate has become a matter of heresy.

Making this explanation all the more appealing to the left is the hypocrisy it points to: The signers of the Norquist pledge predominate in the states most dependent on federal highway funding. (On average, Washington contributes about a quarter of all transportation funding but about half of major capital projects.) A ProPublica analysis finds that the rate of pledge signers is twice as high in the delegations from the dozen states that are most dependent on federal highway aid as it is in the 11 states that are least dependent on it. In Georgia, which is among the most highly dependent states, all but one of the 12 Republicans it now sends to Washington has signed it.

But it’s oversimplifying to give Norquist all the credit. For one thing, his pledge focuses on income tax rates, and while he has done his best over the years to apply it to taxes more broadly, there have also been plenty of times when its signatories have voted to raise revenues without being vilified by Norquist: raising some industry taxes in the 2007 energy law, raising cigarette taxes to pay for children’s health insurance that same year, raising taxes on the wealthy in the 2012 fiscal cliff showdown. While Norquist has sent mixed signals, it’s not unreasonable to think that a gas tax increase that managed to draw support from Republican leaders would get a pass as well.

Resistance to the tax hike goes well beyond the Norquist army. There were a couple years recently where the pledge signers were in the distinct minority on the Hill, and the gas tax still didn’t budge. On the campaign trail in 2008, Barack Obama opposed Hillary Clinton and John McCain’s call for cutting the gas tax amid high oil prices. But Obama made his own pledge not to raise taxes on anyone making less than $250,000. And even if that pledge could be reconciled with a gas tax increase, when he became president with huge majorities in Congress, there was little appetite in his administration for a higher tax amid a steep recession.

“Obama is more open-minded on this than the people around him, but in the conversations I had with him he was not particularly receptive to raising the gas tax,” says Rep. Earl Blumenauer, an Oregon Democrat and leading infrastructure booster. “When we were in charge, we didn’t push it.”

The fact is, the gas tax has never been deeply embraced even by many Democrats. It’s a regressive tax, hitting Americans at the same level regardless of income. Partly for this reason, some liberals have started flirting with alternatives to the gas tax — like a far-reaching carbon tax or a tax on vehicle miles traveled. So far, though, these ideas are far from executable and have only distracted some likely supporters from the push for a simple increase.

So the rate stayed stuck in Washington, even as oil prices plunged, an ideal window for raising the tax since the increase wouldn’t be as hard on a driver’s wallet. The tax now provides only $34 billion of the $50 billion spent annually out of the trust fund. Since by law the fund can’t operate at a deficit, short-term infusions from the Treasury — $62 billion since 2008 alone — have kept it solvent. What’s supposed to be a self-supporting trust fund has turned into just another scramble for taxpayer money.

In the face of the stalemate, the states have crafted their own solutions, often in a rebuke to the political assumptions that have stymied Washington.

In early 2013, just a few months after it voted for Mitt Romney by 41 percentage points, Wyoming passed a 10-cent increase in its gas tax, to 24 cents. Members of the Republican-dominated legislature say there has been no discernible blowback, in the form of primary challenges or otherwise. “There are those folks that will always be upset, but the average person looks at the conditions of the highways and understands there is a need,” says state senate President Phil Nicholas.

As it turned out, Wyoming Republicans were hardly going out on a limb. Instead, they were setting a trend. Other states with Republican leadership that have approved increases in the tax (or in a few cases have hiked other taxes directed toward road spending) are Georgia, Idaho, Iowa, Nebraska, Pennsylvania, South Dakota, Utah and Virginia.

In Iowa, state Sen. Michael Breitbach, a Republican, says his reason for voting for a 10-cent increase was pretty straightforward: it had been 25 years since Iowa raised it, and trucks that used to get four miles per gallon now get almost seven, reducing revenue. He hasn’t seen much backlash, but said he wouldn’t care much if he did. “When I ran for office, I ran on a platform that we needed to improve our road system and we won on that platform, so I’m not too worried about that,” he says. “If I don’t get reelected, I can live with that.”

In Georgia, former Republican state representative Edward Lindsey, who served on a state commission that proposed an increase, says the seven-cent hike passed in April “was not an easy sell” but the backlash has been relatively minimal. “When you go back and tell folks, look guys, this is a core government function — if we can’t do roads and schools and public safety, what’s the purpose of government?”

These legislators’ equanimity about their votes is backed up by the numbers. A survey released in May by the American Road and Transportation Builders Association found that raising the gas tax didn’t hurt Republicans politically, and if anything helped them slightly. Ninety-five percent of Republican state legislators who voted to increase their state gas tax in the past two years and ran for re-election won their races—one point higher than the rate for Republicans who voted against increases. The survey identified 25 legislators who voted for higher gas taxes despite having signed the Norquist anti-tax pledge — and of those, all but one won re-election.

In Pennsylvania, which raised its tax by as much as 28 cents over five years, making it the most expensive in the country (50 cents) while providing $2.3 billion per year for transportation, not a single Republican who voted for the increase was booted from office. The notion that voting to raise the gas tax is a political third rail is being undermined in some of the most conservative swaths of the country.

It’s true that most states must, by law, balance their budgets, and can’t just load highway costs onto the deficit as Washington can. The major anti-tax groups were noticeably subdued in the state debates — some groups, like Club for Growth and Heritage Action, steered clear entirely, while Koch Brothers-backed Americans for Prosperity made only token efforts in some states, like Iowa. As some of these groups see it, transportation spending should be left to the states entirely — “devolution” — and if they want to raise their gas tax, so be it. “There are 50 departments of transportation that know their priorities far better than bureaucrats do,” says Andy Roth, vice president of government affairs at the Club for Growth.

Most of all, state legislators voting for gas tax increases benefit from one key dynamic that hurts all federal tax-collection efforts: voters know the money would stay right at home, without the strings that come with federal money, such as having to spend some of it on public transit, a requirement that dates back to the Reagan tax increase. “The problem I have with the federal gas tax is … you never know if you’re going to get back what you put in,” says Breitbach, in Iowa.

In fact, all states are now getting back more than they put in, because the federal gas tax is being supplemented by so much additional spending in the trust fund. But Breitbach put his finger on the biggest obstacle to raising the federal gas tax: voters simply don’t trust what happens to their money once they send it to Washington. “I don’t think anyone at the national level will be able to articulate a gas tax as the way to go forward,” says Dan Holler of Heritage Action. “It’s gotten progressively harder because there’s less and less trust in Washington.”

The latest short-term extension for the Highway Trust Fund — the 33rd passed by Congress — expires at the end of next week. House Ways and Means Chairman Paul Ryan and Transportation and Infrastructure Chairman Bill Shuster last week pushed through the House yet another short-term fix, with about $8 billion, enough to get the fund through mid-December.

Senate Majority Leader Mitch McConnell has cobbled together a somewhat longer-term fix, enough to get the fund through the 2016 election, when many of his Republican colleagues are up for reelection. Among the revenue sources in the three-year proposal he presented yesterday, and which the Senate may vote on today, is selling off part of the nation’s Strategic Petroleum Reserve for $9 billion — that is, instead of updating a tax on gasoline, Congress may end up selling off part of its emergency supply of it.

The extensions, their proponents say, will give Congress more time to come up with a truly long-term solution to transportation funding — the same thing congressional leaders have been saying for years now. There is talk of using a one-time influx of repatriated corporate revenues from overseas for infrastructure, but that has gotten caught up in the larger debate over tax reform. The conservative dream of devolution to the states has a long way to go to win acceptance, not least amongst the states themselves. Some Republicans, including Ryan, say they are open to new forms of “user fees” to pay for roads, such as electronic tolling, but this remain nebulous.

What Ryan, McConnell and Speaker John Boehner have all ruled out is an increase in the gas tax. At a Ways and Means hearing last month to discuss long-term solutions for the shortfall, Ryan announced at the outset that “We are not going to raise gas taxes, plain and simple.” The tax, he said, had outlived its time. “We just can’t chase fuel efficiency with much higher taxes,” he said, deftly painting the decision as technocratic rather than ideological and political. Top Democrats like Sen. Charles Schumer of New York, have made precious little attempt to rally support for an increase, citing a lack of support in both parties.

Even as congressional leaders look for another short-term fix, though, more of their Republican colleagues are starting to contemplate the long-term one adopted by so many red states. Early this year, several Senate Republicans, including the conservative Oklahoman James Inhofe, spoke up for an increase before Ryan quashed the notion. In the House, Rep. Jim Renacci, an Ohio Republican, reached out to colleagues as fed up as he was with funding patches, including Rep. Bill Pascrell, a New Jersey Democrat. In April, they released the Bridge to Sustainable Infrastructure Act.

The bill would keep the gas tax, raise it by half a cent in the first year, and then index it to inflation moving forward, so it could grow roughly in line with costs. The plan would provide enough revenue over 10 years, $27.5 billion, to plug the shortfall in the next couple years. Meanwhile, the bill would order a congressional task force to come up with an alternate long-term solution, and if it failed to do so, the gas tax would be increased to whatever level was necessary to fill the trust fund.

This indirect, incremental approach may make the proposal more palatable than a straightforward proposal by Earl Blumenauer to  increase the tax 15 cents over three years, or about as much as it would have gone up if it had been tied to inflation way back to 1993.

“When people say, ‘That’s an increase in the user fee,’ I say, no, that’s an opportunity for Congress to work its will,” Renacci says. “And if it won’t work its will, then the user fee goes up.” As painfully gradual as this approach is, it’s a big step further than anything else Hill leaders have proposed, its proponents say. “Mr. Ryan hasn’t done a damn thing yet that we can buy into,” Pascrell says.

The bill has more than 30 co-sponsors, a quarter of them Republicans. (Another Republican, Rep. Tom Rice of South Carolina, just introduced his own bill, to increase the tax by 10 cents, offset with a $133-per-driver income-tax credit.) So far, aside from a Wall Street Journal op-ed from Americans for Prosperity, the anti-tax groups have held off on it, saying its prospects are so dim that it’s not even worth warning Republicans against it. “We don’t view it as a credible threat from a legislative standpoint,” says Holler, of Heritage Action. But that could change quickly, says Club for Growth’s Roth: “If this Renacci nonsense gains traction, I’m pretty certain we’re going to weigh in on it.” To prepare for that moment, the transportation lobby has given the bill’s sponsors some back-up advertising at home, says Michael O’Brien of the Association of Equipment Manufacturers.

The prospects for any long-term fix may turn on whether enough Washington Republicans are willing to relinquish the anti-tax flag and join their state legislative counterparts who voted for gas-tax hikes and lived to tell of it.

Some of the Renacci bill’s Republican backers, including Renacci himself, have signed the Norquist pledge — but are adamant that it does not apply to the gas tax. Others, such as Rep. Scott Rigell of Virginia and Rep. Richard Hanna of New York, have formally rejected the pledge.

“You can’t run a country on ideology, you have to run it on ideas, and they have to be forward-thinking and allow us to be competitive,” says Hanna. “These are public benefits. They’re not about bigger government. They’re about running the country.”