Last year proved to be a volatile one for gas prices–with July 2008 being the bleakest month on record. Average national prices were as high as $4.11 per gallon and many areas of the country were being plagued with long gas lines and supply shortages. As a result of surging prices and the economic slowdown, consumers began to change their consumption patterns. Within five months, the U.S. average price of gasoline had decreased by over 50% to $1.65 a gallon–numbers not seen since early 2004.
But that short term relief may soon change. The Obama administration feels a massive infrastructure construction program is key to stimulating the economy, which will require major funding. Part of this investment will be funded by gasoline taxes…theoretically.
Motorists are decreasing miles driven and buying less gas in order to economize. They are also buying more fuel-efficient cars. For the first time since 1991, fuel consumption is projected to drop. As a result, the main source of funding for highway projects (the fuel tax-funded Highway Trust Fund) may soon be showing a deficit of more than $3.2 billion.
The current federal tax is 18.4 cents per gallon for gasoline and 24.4 cents on diesel. (See graph.) State fuel taxes vary, but the national average state tax on gas in November 2008 was 21.59 cents per gallon and 22.14 cents per gallon on diesel.
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A federal commission is urging a roughly 50% increase in gasoline and fuel taxes to cover the tax collection shortfall stemming from reduced consumption.
Increasing the tax is only one recommendation. The National Commission on Surface Transportation Infrastructure Financing is promoting a mileage-based tax. Of course, there’s the small problem of equipping every car and truck with a device that uses global positioning satellites and transponders to record how many miles the vehicle has been driven so the tax can be calculated. Privacy advocates will be apoplectic.