Gas Tax Politics, Part I
Martin A. Sullivan is a contributing editor for Tax Analysts.
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For Herbert Hoover who started it all in 1932, the federal gas tax was a means to balance the budget. For Dwight Eisenhower in 1956, it was the means for financing the interstate highway system. But the modern era of gas taxation did not begin until October 17, 1973.
That's the day the United States and other supporters of Israel in the Yom Kippur War found themselves victims of an international oil embargo. The once obscure Organization for Petroleum Exporting Countries closed the spigots on oil flowing to the West, and in the blink of an eye, the price of a barrel of oil jumped from $3 to $5.11. To add to the misery, OPEC raised the price again in January 1974 to $11.65. The U.S. economy, already facing unprecedented inflation, suffered its worst economic crisis since the Great Depression.
In this rapidly changing environment, the gas tax moved onto the national stage in a new role. It was now a central policy instrument, and a political hot potato, in the anxious but hapless search for U.S. energy security. But as we shall see, the gas tax would also retain its character as a revenue engine for deficit reduction and transportation finance. In fact, all three successful attempts at increasing the gas tax since 1973 were justified primarily as either necessary for repairing the deficit or the nation's infrastructure. In contrast, when reduced dependence on foreign oil was the primary motivation for a gas tax increase, those efforts failed.
The United States is now in the midst of another energy crisis. Even when adjusted for inflation, gas prices have exceeded their previous peak levels reached during the Iranian revolution in 1979. Imported oil accounts for 58 percent of U.S. consumption, up from 35 percent in 1974.1 Oil continues to account for more than 95 percent of all the energy used for transportation in the United States.2 And our military and political involvement in the Middle East is greater than ever.
There is agreement among many economists that an increase in the gas tax is the most efficient and fair approach to promoting energy security.3 So, given the current need for a strengthened energy policy, and given the expert opinion about the benefits of a gas tax hike, what chance is there for serious consideration of a gas tax increase in the next few years? The history of six previous gas tax episodes described here might help answer the question.
First Episode: Nixon and Ford, 1973-1975
President Nixon was only 10 months away from his August 1974 resignation when the OPEC oil embargo began. His responses to the crisis included lowering the national speed limit, extending daylight-saving time, and establishing the Federal Energy Administration to coordinate energy policy. In May 1973, before the oil embargo, Treasury Secretary George Schultz announced that the Nixon administration was studying a gas tax increase as a brake on the inflationary economy. Deputy Treasury Secretary William E. Simon was known to be a strong supporter of the idea.4 The figure under consideration was between 5 and 10 cents a gallon.5 Facing fierce opposition on Capitol Hill, the administration dropped the idea in June.6
Soon after Nixon's resignation, President Ford ruled out a federal gas tax as part of his economic program.7 Yet despite reaffirmations by the White House, there were mixed signals from the Cabinet. Simon had now been elevated to Treasury secretary. Other known supporters of the tax increase were Alan Greenspan, chair of the Council of Economic Advisers, and Frank Zarb, Ford's newly appointed head of the Federal Energy Administration.8 Interior Secretary Roger Morton said the president hadn't "foreclosed on any options" for energy policy.9 Ford was forced to fire his first federal energy administrator, John C. Sawhill, when Sawhill described his own plan for a federal gas tax between 10 and 30 cents a gallon after Ford had publicly refuted the idea.10
Yet the possibility of a gas tax hike was kept alive by Democrats on the House Ways and Means Committee, particularly by Rep. Al Ullman, the new committee chair. Ullman rose to leadership of the committee after scandalous behavior forced Chair Wilbur D. Mills out of his job in December 1974. In February 1975 Ullman floated his plan to increase the gas tax by 10 cents a gallon a year for four years. Under the Ullman plan, each registered vehicle would be allotted coupons allowing a certain number of tax-free gallons per week. Revenue from the tax would be deposited into a trust fund devoted to financing alternative energy sources.11
On May 12 the Ways and Means Committee approved a modified version of the Ullman plan by a 19-16 vote with all 12 Republicans opposing it. The committee bill included a 3-cent-per-gallon increase beginning in 1976, followed by a 5-cent-per-gallon increase each year for every 1 percent increase in national gasoline consumption. The maximum total increase would be 23 cents.12 Gasoline used for farming and commercial aviation would be exempt. Ullman's intention was to tax only "excess" gas consumption, so all individuals of driving age would receive a refund equal to the amount of tax times the amount of gas paid on 40 gallons of gas monthly.13
On June 11 Ullman's effort to raise the gas tax was routed on the House floor. First, in a 345-72 vote, it was limited to 3 cents. Later on the same day, the remaining 3-cent tax was struck by a 209-187 vote.14 The bill that finally passed the House on June 19 was stripped of most of its conservation and incentive provisions, and it never received consideration in the Senate.15 Ullman's proposal was defeated by Democrats' aversion to regressive consumption taxes, Republicans' ideological aversion to all taxes, and politicians' ubiquitous aversion to increasing the highly visible gas tax in the face of rising gas prices.16 That some of the tax increases would be offset by tax refunds did little to soften the opposition.
Second Episode: Carter, 1977
After such a drubbing on the House floor, nobody would have blamed Ullman if he had never again pushed a gas tax increase. But two years later he would shepherd through his committee, and on to slaughter on the House floor, a gas tax hike more than twice as large as the one proposed in 1975.
As the Ways and Means chair pointed out, the big difference between 1975 and 1977 was presidential support.17 Although he did not immediately embrace the idea,18 newly elected President Carter released his sweeping energy program in April 1977. At front and center of this plan stood a phased-in "standby" gasoline tax. The president proposed, in addition to the existing 4-cent-per-gallon tax, 5-cent-per-gallon annual increments over 10 years for every percentage point gasoline consumption increased over national goals. The first increase would not occur until 1979, and the total increase could reach 50 cents a gallon.
With little input from Congress or the rest of the executive branch, the plan was developed by the president's team of experts cloistered in the Executive Office Building next to the White House.19 The team's leader was the bookish James Schlesinger -- Republican, former defense secretary, economist, and soon to be the first secretary of the Department of Energy. For all the brainstorming on the gas tax, it was, except in size, remarkably similar to the 1975 Ullman plan. Under the Carter plan, each series of tax hikes would be conditioned on meeting specified reductions in gasoline consumption. And, as in 1975, to deflect criticism that the tax increases hurt the poor, most of the revenue from the tax would be recycled into tax rebates directed primarily at low-income drivers.
Carter got the support of the Democratic leadership in Congress -- House Speaker Tip O'Neill of Massachusetts and Senate Majority Leader Robert Byrd of West Virginia. Likewise, both chairs of the taxwriting committees were supportive.20 While Ullman of Ways and Means was cautiously optimistic, Finance Committee Chair Russell Long of Louisiana was openly skeptical. Despite the backing of the president and congressional leaders, the survival of the gas tax increase was in question from the outset. It was "not doable, politically or otherwise on the Hill," said Sen. Henry M. Jackson, chair of the Senate Energy and Natural Resources Committee. "It's not going to be done."21
Like the Ullman plan of 1975, the Carter gas tax ran into a tidal wave of opposition. Echoing the sentiments of almost every Republican in Congress, Senate Minority Leader Howard Baker warned even before the plan was released: "I am unalterably opposed to a gas" tax.22 And the Democratic rank and file was a two-pronged problem for Carter. For members from rural and suburban districts, a gas tax was too painful and too visible to constituents who drove long distances. The liberal wing of the party, whose ranks in Congress had swollen after Watergate, opposed a tax hike that fell disproportionately on the poor.
The tax rebate was supposed to handle the regressivity problem. But it proved extremely difficult to convince a cynical public to understand why23 and how rebates would make them whole. Republicans tapped into this sentiment and accused the administration of using the gas tax as a disguised means of helping to finance welfare reform and balance the budget.24 The administration's response, although intellectually sound, was politically inadequate.25 Carter could not "certify today that every nickel of taxes collected will be refunded to consumers."26
And Schlesinger left the door open for criticism when he said the gas tax revenues would be fully rebated only in the early years. "We have not committed ourselves in the later years, because we want to integrate our energy proposals into welfare reform and into tax reform . . . the President would like to have some flexibility."27 Schlesinger tried to blunt criticism by announcing that the net burden on taxpayers from the energy plan in excess of tax rebates would be no more than $7 billion -- a relatively paltry sum in the context of that legislation.28 But the cat was out of the bag. The clumsy response iced any chance the gas tax increase ever had. It seemed like every interest group -- from the AFL-CIO to the U.S. Chamber of Commerce -- opposed the plan on the grounds that it was unfair to the poor and to rural areas.29
It came as no surprise to anybody when the Ways and Means Committee rejected the Carter 50-cent standby tax by a vote of 27 to 10. A majority of Democrats joined all 12 Republicans in defeating the proposal. The committee even refused to approve a 3-cent-per-gallon increase to raise revenue for public transportation, energy research, and conservation.30
The Carter gas-tax-with-rebate was scuttled, but the idea of a scaled-back tax for increased government spending would get a second chance on the House floor. Supported but not requested by the president, an amendment to boost the gas tax by 5 cents a gallon was offered by Rep. James Howard. The revenues from the tax would be split between highway repair and mass transportation. This proposal was shot down by a 339-92 vote. A second amendment to raise the gas tax was offered by Rep. Dan Rostenkowski and was defeated by an even wider margin, on a 470-52 vote.31
Third Episode: Carter, 1979-1980
On January 16, 1979, the Shah of Iran left his country on an "extended vacation," and the Iranian revolution went into full swing. In November 52 U.S. diplomats were taken hostage in Tehran. Iranian oil production plummeted, and the worldwide price of oil spiked to unprecedented levels. In the United States, the price of gasoline rose from 75 cents a gallon in March 1979 to $1.25 a year later, where it would stay for the remainder of the Carter administration. U.S. inflation went to double digits, peaking at 14.7 percent in March 1980.
Independent John Anderson was riding high in presidential polls at the same time. The former Republican had the support of 25 percent of voters. To help rid the nation from its dependence on foreign oil, Anderson proposed a 50-cent-per-gallon gas tax. He would use the gas tax revenue to halve Social Security taxes.32 Carter administration officials criticized the Anderson plan, particularly the offset through Social Security tax relief, because it would not help fight inflation.33 (Ultimately Anderson ended up with 7 percent of the vote in the November election.)
Nevertheless, as it was preparing to release its budget, the Carter administration gave serious consideration to a gas tax.34 After much deliberation behind closed doors, and in the face of soaring gas prices and overwhelming congressional opposition, the tax was not included in the January budget.35
But concerns about inflation grew quickly, and congressional negotiations made it apparent the budget could not be balanced with spending cuts. In a dramatic shift, Carter revised his budget in March to incorporate his new anti-inflation policies. At its center was an oil import fee constructed to mimic the economic impact of a 10-cent-a-gallon gas tax. Using a complex set of rules surrounding a quota system known as "oil entitlements," the administration structured the "conservation fee" to avoid it falling on heating oil and other petroleum products.36
The major advantage of this approach to gas taxation was political. Congress had given the president authority to impose oil import fees by executive order. It could be put into force without further congressional action. To stop the order, Congress would have to vote the proposed fee down and then override a presidential veto. On March 14 Carter issued the order for an oil import fee with an effective date two months in the future.37 The revenues from the fee-tax would not be used to lighten the burden of drivers by reducing other taxes. Like with Nixon in 1973, Carter's primary objective was not energy conservation but restraining runaway inflation with a tax increase.
Predictably,38 Congress went into an uproar.39 Five lawmakers took the president to court, arguing that he had exceeded his authority when he substantively transformed the import fee into a gas tax. A federal court agreed and stopped the imposition of the fee.40
Congress on its own settled the issue before the courts had a chance to hear a Justice Department appeal. In early June the House voted 376-30 to rescind the fee. The Senate quickly followed with a 73-16 vote.41 The president vetoed. Congress easily overrode the veto with the necessary two-thirds margin by a 335-34 vote in the House and a 68-10 vote in the Senate.42
Fourth Episode: Reagan, 1982
After the 1980 election, Ronald Reagan took the White House and Republicans gained control of the Senate. By the end of 1982, the Republicans' success seemed like it might be short-lived. The unemployment rate soared above 10 percent, and in midterm elections Democrats gained 27 seats in the House.
At a press conference on September 28, 1982, Reagan was asked if he could "flatly rule out any tax increases, revenue enhancers, or specifically an increase in the gasoline tax."
Before the election, Reagan quipped: "Unless there's a palace coup and I'm overtaken or overthrown, no, I don't see the necessity for that."
One week after the 1982 election, in a speech to the American Petroleum Institute in Houston, Rostenkowski, chair of the Ways and Means committee, declared that Congress must raise the gasoline tax by 5 cents a gallon. The purpose of the tax was not to reduce energy consumption or balance the budget or fight inflation but to repair the nation's roads and bridges.43
Despite the absence of a coup, Reagan acknowledged two weeks later that a gas "user fee" was under discussion.44 And two weeks after that he announced his plan to ask the lame-duck Congress to increase the gas tax and earmark the funds for highways, bridges, and mass transit.45
Support in Congress was strong and bipartisan. In addition to Rostenkowski, other powerful members supporting the proposal were House Speaker Tip O'Neill and Finance Committee Chair Robert Dole. The Reagan plan was introduced as legislation by Minority Leader Robert Michel in the House and Majority Leader Howard Baker in the Senate.46 Legislators argued that the bill was a job creation plan. And they repeatedly cited estimates by Transportation Secretary Drew Lewis that it would create 320,000 jobs.47
It was unusual for anybody, much less Republicans, to argue that tax increases create jobs. The president's chief economic adviser pointed out the problem for the president: "The Lewis proposal may be politically desirable. But I thought I should tell him that it may actually increase unemployment during the first year or two."48
But Reagan's bigger problem was one of appearances. He had already made an about-face on tax increases, and he was also against jobs programs. Before the election, Reagan opposed a Democratic jobs bill passed by the House.49 And even after the election, Reagan reiterated his opposition to government job creation legislation. To save some face, Reagan insisted his proposal was not a jobs bill but a roads bill.
Eighty percent of the revenue from the new tax went to the highway program, and in a new twist, the remaining 20 percent went to mass transit. A higher tax on diesel was also part of the plan. To help placate the trucking lobby, the plan helped truckers by allowing heavier loads and longer trucks.50
The House passed the legislation by a vote of 180 to 87.51 The only fly in the ointment for Reagan and other backers of the gas tax increase was the filibuster in the Senate by three conservative stalwarts. With the Christmas holiday fast approaching, Republicans Jesse Helms, Don Nickles, and Gordon Humphrey frustrated the president and infuriated their colleagues by stalling the bill on the Senate floor. In vain, they argued that the tax increase hurt working people and would harm the economy already in the midst of a recession.52 The trio finally relented, and the Senate quickly passed the bill with a 54-33 vote. The president signed the bill on January 5, 1983, and the tax increase took effect on April 1, 1983.53
Passage of the bill marked a sharp turnaround in gas tax politics. Over a six-year period, Democrats -- first Ullman and then Carter -- tried to enact increases in the gas tax and were overwhelmed with bipartisan opposition. In less than two months, Reagan more than doubled the tax with broad bipartisan support.
Fifth Episode: Bush, 1990
Like the 5-cent rise in the gas tax legislated in 1982, the nickel increase in the gas tax included in the Omnibus Budget Reconciliation Act of 1990 had little to do with energy policy. It was the byproduct of arduous negotiations between a Republican president and a Democratic Congress that agreed that $500 billion of deficit reduction was needed over the subsequent five years but disagreed about how the burden of those cuts should be distributed across income levels.
The 1990 budget season started with a bang in March when Rostenkowski floated his take-no-prisoners plan to cut the deficit. The "Rosty challenge" included cuts in defense spending, in Medicare and Social Security, in the top individual income tax rate, and in taxes on alcohol and tobacco, and proposed a 15-cent-per-gallon increase in the tax on motor fuels.54
The initial reaction to the plan from most sectors was generally favorable.55 For example, Dole responded positively and said he was "ready to sit down with all interested parties to explore possibilities and realities." He also suggested, "We might take a look at targeting his proposed gasoline tax increase to help repair our crumbling roads, highways, and bridges."56
Over the next couple of months, President Bush and congressional leaders positioned themselves to begin negotiations using the Rostenkowski plan as their starting point.
The main bone of contention was whether Bush would consider tax cuts and renege on his famous campaign promise of "no new taxes." "The assumption, I think, is that all matters would be on the table," said House Speaker Thomas Foley. And even House Minority Leader Robert Michel admitted, "I don't know how you make [the Gramm-Rudman deficit reduction target] without doing something on revenue."57 Bush agreed to a summit but insisted he was opposed to tax increases.
Meanwhile, with revised budget forecasts, Office of Management and Budget Director Richard Darman was sounding the alarm about a soaring deficit.58 Transportation Secretary Samuel Skinner was arguing that a gas tax was a "user fee" and that Bush's no-new-taxes pledge was mainly geared to income taxes, not user fees.59 And White House press secretary Marlin Fitzwater sidestepped questions about whether negotiations would include discussion of tax increases.60
Finally in June, to the outrage of conservatives, the president changed his mind on tax increases.61 Many factors contributed to this turnaround: concerns about rising interest rates, market jitters fomented by the savings-and-loan crisis, and concerns about the growing deficit and the politically unacceptable spending cuts that would automatically be forced under the tough budget rules of the Gramm-Rudman legislation.62
After five months of intense bargaining, the summit negotiators finally agreed on September 30 to reduce the deficit by $500 billion over five years. The agreement included defense cuts, Medicare cuts, and income and payroll tax increases (but not rate increases). It excluded a capital gains tax cut desperately sought by the administration. Among its several increases in excise taxes was a 10-cent-a-gallon hike in the gas tax and an across-the-board petroleum tax that would raise the price of gas another 2 cents a gallon.
As the agreement began its journey through the formal legislative process, it met a firestorm of protest in the House from the rank and file of both the political right and left.63 Conservative Republicans were dead set against any tax increase.64 Liberal Democrats resisted budget cuts and tax increases they believed disproportionately burdened the poor.65
To get the approval of the House, Rostenkowski forged a new plan that appeased liberals and hardened the resistance of conservatives.66 The new plan included higher income tax rates on upper-income households. And despite the chair's fondness for using the gas tax as a revenue raiser, it excluded any fuel tax hike. With the vote split largely across party lines, the House approved its plan on October 16.67
At the same time, lawmakers in the Senate worked out a bipartisan plan that did not include income tax rate increases. The 9.5-cent-a-gallon gas tax hike included in the Senate package ran into some opposition. Sen. Max Baucus, D-Mont., opposed the plan because the hike in gas tax rates and cuts in farm programs were unfair to the "vast, thinly populated West." On the floor, amendments from Sen. Steve Symms tried to delete motor fuels tax entirely from the package.68 Sen. Kent Conrad, D-N.D., offered an amendment that would have raised the top income tax rate to 33 percent and cut the proposed gasoline tax hike from 9.5 cents to 5 cents a gallon. Both senators' attempts failed.69 But the Senate did agree that half of the proceeds for a gas tax should go to highway and mass transit trust funds.70
After two more weeks of arduous debate about how much of the burden of deficit reduction should fall on the wealthy, conferees reconciling the two plans eventually settled on a 5-cent-per-gallon increase.71 The final version retained the Senate's 50-50 split for deficit reduction and infrastructure finance, so out of the total 5-cent-per-gallon increase, 2 cents went to highways and 0.5 cent went to mass transit.72 Lawmakers in both houses gave their final approval to an agreement on October 27, less than a week before Election Day.73 President George H.W. Bush, now preoccupied with events surrounding the Iraqi invasion of Kuwait, signed the Omnibus Reconciliation Act of 1990 into law on November 5.
It is interesting to note that Congress and the president approved the tax hike in the face of rapidly rising gas prices. Between July and October of 1990, the price of a gallon of gasoline rose from $1.08 to $1.38.
Sixth Episode: Clinton, 1993
President Clinton began his presidency opposed to a gas tax increase, favoring a broad-based energy tax, and devoted to deficit reduction. Within a matter of months he would reverse his position on the first two issues to promote the third.
As in 1990, deficit reduction and redistributing the tax burden were the focus of attention for Congress and the president in 1993. During the presidential campaign, Clinton criticized his opponents, Democrat Paul Tsongas and independent Ross Perot, for proposing a gas tax because of the extra burden placed on the poor. And even after the election, Clinton commented at a news conference: "No matter what the other merits of the gas tax are, you don't want to load it onto the inequality you already have."74 Clinton wanted an energy tax, not a gas tax.
Treasury Secretary Lloyd Bentsen got the ball rolling on January 24 when he favorably discussed a broad-based energy tax on television. To his Meet the Press interviewers, Bentsen spoke favorably on the environmental, energy security, and deficit reduction benefits of such a tax.75 The American Petroleum Institute and the watchdog group Citizens for Tax Justice immediately complained that the tax would disproportionately hurt the poor.76 Manufacturing and agricultural groups also announced their opposition.77 And even the widely discussed idea of pairing an energy tax increase with a low-income tax rebate did not seem to make a dent in the criticism.78
The new vice president, Al Gore, was a prominent environmentalist, and he had earlier supported a carbon tax. After considering an array of options for energy taxation, the administration decided in favor of a tax based on the energy content of fuels. The B.T.U. tax had the political advantage over a carbon tax of not overwhelming legislators from coal-producing states like West Virginia, Pennsylvania, and Illinois.79 It was strongly supported by environmental groups.80 Treasury estimated the tax would add 7.6 cents a gallon to the price of gasoline.81
Nevertheless, despite this support and despite Gore's powerful influence in the administration, as the energy tax wound its way through Congress, the objective of deficit reduction would always take precedence over environmental concerns.82
To increase support for the tax, the formal administration proposal -- part of the administration's first budget -- contained several provisions to provide relief to powerful constituencies. The version of the B.T.U. tax that squeaked its way through the House was even more complex and had more special rules than the administration plan.83 The House approved a modified Clinton budget plan on May 27 by a vote of 219 to 213. Every Republican and 39 Democrats voted against it.84
The B.T.U. tax hit a brick wall in the Finance Committee, which Democrats controlled by only two seats. Industry opposition targeted Democratic senators from oil-patch states.85 Sen. David Boren of Oklahoma, for a while believed to be a defender of the president's plan, became an implacable foe of the B.T.U. tax.86 Sen. John Breaux of Louisiana tried to work with the administration, but he also did not support the tax.87 In the end, the committee would follow Breaux's suggestion and replace the B.T.U. tax with a gasoline tax.88 On June 18 the committee approved a package including a gas tax hike of 4.3 cents a gallon.
By a 50-49 vote, the full Senate approved a package including the 4.3-cent-a-gallon gas tax increase on June 25. With all Republicans and six Democrats voting against the measure, Gore cast the tiebreaking vote.89 Before final approval, the bill was amended so that all of the fuel tax increases would be deposited in the Highway and Airport Trust funds.90
In conference, there was a great deal of wrangling over the size of the gas tax hike. Rostenkowski conceded the House would drop the B.T.U. tax and proposed a 9-cent-a-gallon gas tax increase instead.91 The general opinion among prognosticators was that the conference would adopt a gas tax increase of 6, 7, or 8 cents a gallon.92 Dole predicted: "It's not going to be 4.3 cents. It's going to be 7 or 8 cents before it's finished."93
But resistance to the gas tax in the Senate was particularly strong among senators from western states. Baucus, a member of the conference committee, was particularly opposed, even favoring a B.T.U. tax over a gas tax.94 Sen. Herb Kohl, D-Wis., up for reelection that year, refused to go beyond an increase of 4.3 cents.95 Kohl's view ultimately prevailed in the final version adopted by negotiators. The conferees dropped the provision adopted on the Senate floor to put new fuel tax revenues in transportation trust funds and devoted all of the increase to deficit reduction. The final agreement passed the House 218 to 216 on August 5. Gore broke a 50-50 tie in the Senate on August 6. Clinton signed it on August 10.
There have been no major efforts to raise the motor fuels tax since Clinton succeeded in getting his deficit reduction plan approved by Congress. After a crushing defeat on healthcare reform, the 1994 elections swept Republicans into power on Capitol Hill. The GOP had control of both Houses through 2006 (except for a brief period in 2001-2002 when the Senate was under Democratic control). Strong antitax sentiment of congressional Republicans, particularly in the House, kept gas tax increases from receiving serious consideration.
But other factors contributed as well. During the remainder of the Clinton administration, deficits and gas prices shrank, and along with them concerns about the budget and energy. During the administration of George W. Bush, both deficits and gas prices moved upward. Terrorist attacks and war kept concerns about the deficit in check. And although some thought patriotism and concerns about energy security could have moved the public to accept a higher gas tax,96 the president's opposition to tax increases kept that idea from ever coming into play.
The road construction lobby always looks favorably on fuel tax hikes as long as revenues are dedicated to the Highway Trust Fund. But in the years after 1993, major increases in infrastructure spending have been funded by rechanneling gas tax revenue set aside for deficit reduction back into the Highway Trust Fund. Included in the 1993 deficit reduction legislation was a provision transferring the additional 2.5-cent gasoline tax dedicated for deficit reduction to the Highway Trust Fund beginning on October 1, 1995. And in 1997 Congress returned the remaining 4.3 cents of the gasoline tax dedicated to deficit reduction to the Highway Trust Fund.97And so the road construction lobby was able to gain access to gas tax revenues without incurring the wrath of the public.
On August 2, 2007, a bridge in Minneapolis jammed with rush hour traffic collapsed into the Mississippi River. Thirteen people died. The tragedy ignited a debate about the need to increase funding for infrastructure -- potentially with a gas tax.98 But in the face of rapidly rising gas prices, the interest in a gas tax hike sparked by the bridge collapse has faded.99
In recent years there have been several proposals to impose a gas tax with offsetting cuts in income and payroll taxes on low-income individuals.100 These revenue-neutral proposals should address concerns from conservatives about tax increases and from liberals about unfair burdens on the poor. But these ideas are nearly identical to those employed during the unsuccessful attempts at gas tax increases by Ullman in 1975, by Carter in 1977, and by presidential candidate Anderson in 1980. The major political shortcomings of ideas of this type are their failure to address the problems of regional disparity and disproportionate burdens on gasoline-intensive industries like trucking and tourism.
In recent years, as concern about global warming has risen, so has interest in a tax on carbon, the gas contributing most to the greenhouse effect. Although both a gas tax and a carbon tax would promote the goals of energy security and reduction of greenhouse gas emissions, it is important to recognize the differences between the two. For example, if a carbon tax reduces electricity generated with coal, it does little to improve energy security because coal and petroleum are not close substitutes. In other words, any reduction in the use of coal does not improve energy security. Conversely, a gas tax does nothing to reduce carbon emissions for coal- and natural-gas-fired power plants. In short, a gas tax is best suited to promote energy security. A carbon tax is better suited to fight global warming.
Many of the political issues are similar for the two taxes. A carbon tax would raise the price of electricity and gasoline, and this creates concerns about a disproportionate impact on low-income households. As with the gas tax, using tax revenues to fund offsetting tax cuts is a popular feature of carbon tax proposals. Beginning in July 2008, the Canadian province of British Columbia is imposing a carbon tax. To offset the burden of the tax, lower-income British Columbians receive an annual climate action credit of $100 per adult and $30 per child (paid quarterly).101 The Liberal Party of Canada (not currently in power) has a similar proposal for the federal government.102 In the United States, carbon taxes with rebates or offsetting reductions in other taxes have been proposed by Gore, Daniel Rosenblum of the Carbon Tax Center, and Tufts University economist Gilbert Metcalf.103
Similar to a carbon tax, a cap-and-trade system would reduce carbon emissions and could generate significant revenue for the government. Under such a system, the government sets a nationwide level of carbon emissions and then sells or gives away permits that can be traded among carbon-emitting businesses. Although economists generally consider a cap-and-trade system economically inferior to a carbon tax,104 it has the tremendous political advantage of not automatically drawing the ire of antitax conservatives.
The history presented in this article teaches us that any future gas tax increase or passage of a new carbon tax is likely to occur only under the right conditions. First, the problem the tax is intended to address -- whether that be global warming, dependence on foreign oil increasing federal deficits, or the need to repair infrastructure -- must be of pressing concern. Second, the tax must be designed and marketed to fend off political objections. These include not only concerns about an unfair burden on low-income families, but also opposition by fuel-intensive industries and rural and suburban regions that bear a larger-than-average burden of taxes on fuel.
1 Energy Information Administration, U.S. Department of Energy, Annual Energy Review, Table 5.1, "Petroleum Overview, 1949-2007," available at http://www.eia.doe.gov/emeu/aer/petro.html.
2 Energy Information Administration, U.S. Department of Energy, "U.S. Consumption by Sector," available at http://www.eia.doe.gov/pub/oil_gas/petroleum/analysis_publications/oil_market_basics/demand_text.htm.
3 See, e.g., the opinion piece by the former chief economic adviser to George W. Bush, N. Gregory Mankiw, "Raise the Gas Tax," The New York Times, Oct. 20, 2006.
4 Paul E. Steiger, "Gasoline Tax Boost Under Study by U.S.," Los Angeles Times, May 30, 1973.
5 Richard L. Strout, "Gasoline Taxes -- Hot Way to Cool U.S. Economy," The Christian Science Monitor, June 1, 1973; and Ernest Conine, "Big Gas Tax Increase Is Worth Thinking About," Los Angeles Times, Oct. 5, 1973.
6 "Is Federal Gasoline Tax Hike Still Alive?" Tax Notes, June 25, 1973. p. 1.
7 Peter Milius, "No New Gas Tax," The Washington Post, Oct. 5, 1974.
8 Rowland Evans and Robert Novak, "Another Look at the Gas Tax," The Washington Post, Dec. 2, 1974.
9 Carroll Kilpatrick, "Ford Affirms Opposition to Gas Tax Rise," The Washington Post, Nov. 14, 1974.
10 "The Gentlemanly Sacking of Sawhill," Time, Nov. 11, 1974.
11 Harry B. Ellis, "Democrat Energy Plan Unveiled," The Christian Science Monitor, Feb. 26, 1975.
12 Thomas Reese, "The Energy Bill Markup: Sorting Out the Trends," Tax Notes, May 19, 1975, p. 3; and James Reichley, Conservatives in an Age of Change: The Nixon and Ford Administrations, Brookings Institution Press, 1981, p. 367.
13 Peter Milius, "Tied to Income Tax Cut," The Washington Post, Mar. 18, 1975; and "Summary of Energy Provisions," Tax Notes, May 19, 1975, p. 10.
14 Richard L. Lyons, "House Bars All Rises in Gasoline Tax," The Washington Post, June 12, 1975.
15 Reichley, supra note 12, p. 367.
16 "The Energy Bill Tragedy: Everyone Loses in a Three-Way Tie," Tax Notes, May 26, 1975, p. 20.
17 "Ullman Applauds Energy Plan as Ways and Means Digs Into Full Legislative Plate," Tax Notes, May 2, 1977, p. 5.
18 "President Carter on Gas Taxes," Tax Notes, Mar. 21, 1977, p. 15; "Hello, Gasoline Tax," The Christian Science Monitor, Apr. 15, 1977; and James M. Naughton, "Carter Shaped Energy Plan With Disregard for Politics," The New York Times, Apr. 24, 1977.
19 Edward Cowan, "Mapping Out a National Energy Policy," The New York Times, Apr. 10, 1977.
20 "Now It's Up to Congress," Time, May 2, 1977.
21 Warren Brown, "Hill Won't Impose Standby Gas Tax, Jackson Asserts," The Washington Post, May 2, 1977.
22 Martin Tolchin, "Carter's Plan to Raise Gas Tax Runs Into Opposition," The New York Times, Apr. 19, 1977.
23 Tom Wicker, "Rebates or Revenue?" The New York Times, April 26, 1977.
24 Edward Cowan, "Republicans Contend Energy Levies Are Designed as General Tax Rise," The New York Times, Apr. 26, 1977.
25 Tom Wicker, "A Crisis of Credibility," The New York Times, June 12, 1977.
26 Wicker, supra note 23.
28 Edward Cowan, "Taxpayers' Loss in Energy Plan Put at $7 Billion," The New York Times, Apr. 30, 1977.
29 Joseph J. Thorndike, "Plans for a Refundable Gas Tax Gain Popularity," Tax Notes, June 12, 2006, p. 1281, Doc 2006-11073, or 2006 TNT 113-33.
30 George Lardner Jr., "Committee Kills Auto Tax Rebate, Levy on Gasoline," The Washington Post, June 10, 1977; and Edward Cowan, "House Panel Rejects Rise in Gasoline Tax; None Expected in '77," The New York Times, June 10, 1977.
31 Richard L. Lyons, "Rise in Gas Tax Killed," The Washington Post, Aug. 5, 1977; and Steven Rattner, "House Rejects Efforts to Raise Tax on Gasoline," The New York Times, Aug. 5, 1977.
32 Harry B. Ellis, "50-Cent Gas Tax: Would It Help Both Social Security and Energy Crisis?" The Christian Science Monitor, Nov. 27, 1979; and Ronald J. Ostrow, "50-Cent Gas Tax Plan Defended," Los Angeles Times, Apr. 8, 1980.
33 Harry B. Ellis, "Carter Nearing Decision Deadline on $1.50 Gasoline," The Christian Science Monitor, Dec. 12, 1979.
34 "Carter Considers a Gas Tax," Time, Dec. 17, 1979.
35 John M. Berry and David S. Broder, "Carter Drops Gas Tax, Rationing Ideas," The Washington Post, Dec. 22, 1979; and Robert A. Rosenblatt, "Carter Avoids Issue of Raising Gas Tax," Los Angeles Times, Jan. 13, 1980.
36 John M. Berry, "Oil Fee: Fighting Costs by Raising Them," The Washington Post, Mar. 12, 1980.
37 Steven Rattner, "Carter Plan Is Due Today on Economy; 10-Cent Gas Rise Likely," The New York Times, Mar. 14, 1980.
38 Steven Rattner, "Carter Said to Bar an Oil Import Fee," The New York Times, Dec. 21, 1979.
39 Harry B. Ellis, "Gas Tax vs. Balanced Budget Is Tough Choice for Congress," The Christian Science Monitor, May 13, 1980; and Richard L. Strout, "Carter Gas Tax Stirs Hornets' Nest on Hill," The Christian Science Monitor, May 29, 1980.
40 Robert A. Rosenblatt, "Court Halts Carter's 10 Gas Price Hike," Los Angeles Times, May 14, 1980; and "The Oil Import Fee: When One and One Equals Zero," Tax Notes, May 26, 1980, p. 763.
41 William J. Eaton, "Congress Rejects 10-Cent Gas Fee by Big Margins," Los Angeles Times, June 5, 1980.
42 Steven R. Weisman, "House, by 335 to 34, Overrides Carter on Oil Import Fee," The New York Times, June 6, 1980; and Martin Tolchin, "Oil-Import Fee Dies as Senate Overrides Carter by 68 to 10," The New York Times, June 7, 1980.
43 Edward Cowan, "Gas Tax Urged by Rostenkowski for Road Repairs," The New York Times, Nov. 10, 1982.
44 "Energy Tax Options Under Consideration," Tax Notes, Nov. 22, 1982, p. 638.
45 Ellen Hume and Don Irwin, "Reagan Will Ask for 4-Cent Hike in Gas Tax," Los Angeles Times, Nov. 24, 1982.
46 Ernest Holsendorph, "Legislation to Raise the Gas Tax by 5 Cents Is Introduced in the Senate," The New York Times, Nov. 30, 1982.
47 Harry B. Ellis, "Why Congress Now Warms to the Gas Tax," The Christian Science Monitor, Nov. 29, 1982; and David Treadwell and Ellen Hume, "Congress Lured by Public Works Cure," Los Angeles Times, Nov. 22, 1982.
48 Edward Cowan, "Aide Warns Reagan a Gas Tax Rise May Cost Jobs," The New York Times, Nov. 19, 1982.
49 Ellen Hume and Don Irwin, "Senate GOP Considering Job Program," Los Angeles Times, Nov. 10, 1982.
50 Ernest Holsendolph, "Questions and Answers on Administration's Plan to Raise Federal Gas Tax," The New York Times, Dec. 5, 1982.
51 Martin Tolchin, "House Approves Gas Tax Increase; Senate Showdown to Be Thursday," The New York Times, Dec. 22, 1982.
52 Martin Tolchin, "How the Gas Tax Lost in the Senate," The New York Times, Dec. 18, 1982.
53 "Gas Tax Readied for President's Signature," Tax Notes, Jan. 3, 1983, p. 83.
54 Pat Jones, "Spotlight on the Rosty Challenge: Deficit Plan Takes Hill by Storm," Tax Notes, Mar. 19, 1990, p. 1351.
55 "Rosty Leads the Charge," The Christian Science Monitor, Mar. 16, 1990.
56 "Dole Calls Rostenkowski Deficit Proposal a Wake-Up Call," Tax Notes Today, Mar. 12, 1990, Doc 90-1990, 90 TNT 55-7.
57 Lane Davenport, "White House and Congress Move Toward a Budget Summit," Tax Notes, May 7, 1990, p. 631.
58 Andrew Rosenthal, "Bush Budget Chief Sounds the Alarm on a Rising Deficit," The New York Times, May 9, 1990.
59 Sam Fulwood, "Skinner Sees Federal Gasoline Tax as 'User Fee' Revenues: The Transportation Secretary's View Seems Aimed at Circumventing Bush's Pledge of 'No New Taxes,'" Los Angeles Times, Apr. 6, 1990.
60 Ann Devroy and John E. Yang, "White House Shores Up No-Tax Stand," The Washington Post, May 10, 1990.
61 Andrew Rosenthal, "Bush Now Concedes a Need for 'Tax Revenue Increases' to Reduce Deficit in Budget," The New York Times, June 27, 1990.
62 David E. Rosenbaum, "Behind Bush's Turnaround on Taxes," The New York Times, May 18, 1990.
63 Marshall Ingwerson, "Budget Plan Faces Hard Sell on Capitol Hill," Oct. 2, 1990; and "Budget Summit Agreement Finds Few Takers in the House," Tax Notes, Oct. 15, 1990, p. 362, 90 TNT 208-62.
64 Tim Gray, "Gingrich Will Not Support Budget Agreement," Tax Notes Today, Oct. 2, 1990, 90 TNT 202-1.
65 Tim Gray, "Summiteers' Excise Tax Obsession Shifts Tax Burden Downward," Tax Notes, Oct. 8, 1990, p. 129.
66 "Bush Thrown for a Loss," The Christian Science Monitor, Oct. 30, 1990.
67 Tim Gray, "House Guts Summit Agreement in Reconciliation Bill, Shifts Revenue Burden to the Wealthy," Tax Notes, Oct. 22, 1990, p. 375.
68 J. Andrew Hoerner, "Senate Poised to Pass Record $500 Billion Deficit-Reduction Plan," Tax Notes Today, Oct. 19, 1990, 90 TNT 214-1.
69 "Budget Talks Begin in Senate," Tax Notes, Oct. 29, 1990, p. 580, 90 TNT 218-55.
70 Pietro S. Nivola and Robert W. Crandall, The Extra Mile: Rethinking Energy Policy for Automotive Transportation, Brookings Institution, 1995, p. 104.
71 David E. Rosenbaum, "The Struggle in Congress; Leaders Reach a Tax Deal and Predict Its Approval; Bush Awaits Final Details," The New York Times, Oct. 25, 1990.
72 Pamela J. Jackson, "The Federal Excise Tax on Gasoline and the Highway Trust Fund: A Short History," Congressional Research Service report for Congress, Apr. 4, 2006.
73 John E. Yang, "Weary Lawmakers Pass Fiscal Package; Bush Says He'll Sign 5-Year Deficit Plan," The Washington Post, Oct. 29, 1990.
74 Steven Greenhouse, "Gasoline Tax Plan Is Reviving," The New York Times, Jan. 2, 1993.
75 David S. Lilzenrath, "Clinton to Consider Consumption Tax; Bentsen Hints at Energy Levy," The Washington Post, Jan. 25, 1993.
76 Amy Kaslow, "Clinton's Team Floats Proposals for Economy," The Christian Science Monitor, Jan. 29, 1993.
77 John Greenwald, "Why Not a Gas Tax?" Time, Feb. 15, 1993; and Eric Pianin and Thomas W. Lippman, "Energy Tax Suggestions Propel Opponents to the Barricades; Coalition of Interests Make Enactment Difficult, Analysts Say," The Washington Post, Feb. 5, 1993.
78 Peter Jakubowicz and Barbara Kirchheimer, "Industry Groups Mobilize Amid Talk of Higher Energy Taxes," Tax Notes, Feb. 15, 1993, p. 819.
79 Dan Balz and Ann Devroy, "Clinton Navigated Politics, Deficits to Craft Plan," The Washington Post, Feb. 21, 1993.
80 Thomas W. Lippman, "Energy Tax Has 'Green' Tint; Environmentalists Back Plan They Helped Draft," The Washington Post, Mar. 2, 1993.
81 David S. Hilzenrath, "Clinton's Energy Tax Faces a Higher Hurdle; Deals in House Fail to Satisfy Key Senators," The Washington Post, May 28, 1993.
82 Amy Kaslow, "President's Plan Targets Nation's Culture of Debt," The Christian Science Monitor, Feb. 19, 1993; and Brad Knickerbocker, "Clinton-Gore Team Doesn't Meet High Hopes of Environmentalists," The Christian Science Monitor, Apr. 13, 1993.
83 Michael Wines, "Congress's Twists and Turns Reshape Bill on Energy Tax," The New York Times, June 2, 1993; and David S. Hilzenrath, "Miscalculations, Lobby Effort Doomed the BTU Tax," The Washington Post, June 11, 1993.
84 Eric Pianin and David S. Hilzenrath, "House Delivers Clinton Economic Stimulus Plan, 219-213; Senate Battle Threatens Fragile Pacts," The Washington Post, May 28, 1993.
85 Hilzenrath, supra note 82.
86 Lloyd Grove, "The Boren Identity; Oklahoma's Senator, Unlikely Point Man for Clinton Plan," The Washington Post, Mar. 24, 1993.
87 David S. Hilzenrath, "Breaux Does Energy-Tax Pact Balancing Act Over Fiery Oil Patch," The Washington Post, June 5, 1993.
88 David E. Rosenbaum, "Senators on Finance Panel Reach Accord on a Budget With Gas Tax and New Cuts," The New York Times, June 17, 1993; and John Dillin, "Senate Gives Clinton Budget Plan a Lift," The Christian Science Monitor, June 18, 1993.
89 Barbara Kirchheimer, "Vice President Gore Puts Senate Democrats Over Budget Finish Line," Tax Notes, June 28, 1993, p. 1727, 93 TNT 136-1.
90 Barbara Kirchheimer, "Senate Works Late Into Night on Tax Bill, Adds Small Business Provision, Exempts Airlines From Transportation Tax," Tax Notes Today, June 25, 1993, 93 TNT 135-1.
91 David S. Hilzenrath, "Rostenkowski Urges 9-Cent-a-Gallon Tax Hike; House Negotiator Changes Strategy," The Washington Post, July 24, 1993.
92 Gene Koretz, "Now, a Gas Tax Seems Like a Drop in the Bucket," Business Week, July 5, 1993; Eric Pianin and David S. Hilzenrath, "Looking More at a Gas Tax; Panetta Indicates Support for Compromise," The Washington Post, July 19, 1993; and Eric Pianin and Ann Devroy, "Conferees Near Deal to Raise Gasoline Tax 6-7 Cents a Gallon," The Washington Post, July 29, 1993.
93 Karen Tumulty and William J. Eaton, "Senate Panel OKs Revised Clinton Economic Plan," Los Angeles Times, June 19, 1993.
94 "Baucus Attacks Energy Tax Policy," Tax Notes, July 29, 1993, p. 313, 93 TNT 144-80.
95 James Risen, "Clinton Scrambles to Deal With Democratic Fussbudgets," Los Angeles Times, Aug. 2, 1993.
96 See, e.g., Thomas L. Friedman, "Bush's Waterlogged Halo," The New York Times, Sept. 21, 2005; and Dorothy Wickenden, "Fuel Duel," The New Yorker, May 22, 2006.
97 Jackson, supra note 73.
98 Kevin Diaz, Jake Sherman, David Shaffer, and Dan Browning, "Fuse Lit on Bridge Debate," Minneapolis Star Tribune, Aug. 3, 2007; and "Bridge Fall May Mean Gas-Tax Hike," USA Today, Aug. 7, 2007.
99 P.J. Huffstutter and DeeDee Correll, "Urgency Has Buckled Since Minneapolis Bridge Collapse," Los Angeles Times, Aug. 1, 2008.
100 Thorndike, supra note 29; Brian Vogt, "A Gas Tax Refund for Energy Security," Sept. 7, 2006, p. 1281, available at http://blog.psaonline.org/2006/09/07/a-gas-tax-refund-for-energy-security; Robert H. Frank, "Energy Policy Is Far Too Complicated to Be Left to the Politicians," The New York Times, June 8, 2006; and Dorothy Wickenden, "Fuel Duel," The New Yorker, May 22, 2006.
101 British Columbia Ministry of Finance, "B.C.'s Revenue-Neutral Carbon Tax," available at http://www.bcbudget.gov.bc.ca/2008/backgrounders/backgrounder_carbon_tax.htm; and CTV British Columbia, "B.C. Tax Rebate Cheques Due Out This Week," June 23, 2008, available at http://www.ctvbc.ctv.ca/servlet/an/local/CTVNews/20080623/BC_tax_rebate_080623.
102 Liberal Party of Canada, "A Green Shift for Canada," June 19, 2008, available at http://www.liberal.ca/story_14099_e.aspx.
103 Al Gore, speech at New York University Law School, Sept. 18, 2008, available at http://gristmill.grist.org/story/2006/9/18/154846/236; Daniel Rosenblum interviewed on The NewsHour With Jim Lehrer, Apr. 11, 2007, available at http://www.pbs.org/newshour/bb/environment/jan-june07/climatechange_04-11.html; and Gilbert E. Metcalf, "A Proposal for a U.S. Carbon Tax Swap," Hamilton Project Discussion Paper 2007-12, Oct. 2007, available at http://www.brookings.edu/~/media/Files/rc/papers/2007/10carbontax_metcalf/10_carbontax_metcalf.pdf.
104 Martin A. Sullivan, "The Carbon Tax Name Game," Tax Notes, Nov. 6, 2006, p. 537, Doc 2006-22174, 2006 TNT 215-12.
END OF FOOTNOTES