The Socialism of Low Taxation
Can higher taxes correspond to freer markets? Yes, when the tax that pays for road maintenance raises less revenue than the cost of driving. We need to stop subsidizing driving and raise the gas tax.
The Low Tax Road to Serfdom?
Over at the National Review Online Josh Barro advocates indexing the federal gasoline tax for exactly that reason.
Many state gas taxes and other vehicle taxes have also fallen in real terms. But this has not led to lower spending on road construction and maintenance—from 1994 to 2008, while GDP grew 103 percent and road spending grew 102 percent, gas and vehicle tax receipts rose only 70 percent.
Governments have made up the difference by tripling their borrowing to finance roads and tripling the diversion of general revenue to pay for road costs. This is a bad trend, because gas taxes below the cost of roads use cause inefficient overuse of roads, and the higher sales and income taxes used to plug the gas tax gap are a drag on the economy.
When driving is priced under its cost, it is not lower taxes – it is higher spending in disguise. Incidentally, raising the gas tax is really the perfect tax to raise for a number of compelling reasons.
1. We want to driving to reflect its true cost. More driving causes more damage to roads and more need for roads in general; they need to be paid for. 2. Burning gasoline is dirty and harmful to the environment (including climate change). If you’re going to pollute you should pay for it. 3. The more cars that are on the roads the more traffic. Price gas closer to its market level and we’ll see less overdriving. Traffic costs our economy billions of dollars in opportunity costs. 4. The more gas we buy the more we enrich the Petro-dictators that oppress their people and fund terrorism. Wouldn’t you prefer our government got that money rather than some despots? 5. Raising the price of gas will make investing in cleaner energy sources more economical. 6. Some research has even shown that raising these types of taxes could, somewhat counterintuitively, improve economic performance. 7. No matter how small a government you want, we have to raise some revenue somehow. Why not raise it by taxing something we want less of instead of something we want more of like labor? 8. The price of gas is going to rise eventually anyway, we might as well make that potentially painful transition as smooth as possible. 9. The Pigou Club is cool.
In his RealClearMarkets piece Barro gives us some hope that Democrats and Republicans might come to an agreement to index the gas tax if all the Bush tax cuts are expanded. I previously argued that Democrats should use the sunsetting of the Bush tax cuts to push through some better tax reforms. This wouldn’t be perfect as the Bush tax cuts themselves are extremely inefficient – but I support the proposal nonetheless. I’ve long thought that raising the federal gas tax is one of the best policies we could adopt. I’m not going to get too excited; I’ve been let down before.