Back in December, I mentioned the idea of Congress taking advantage of lower gas prices and finally raising that gas tax. As discussed time and time again, this tax helps pay for our highway and road construction and maintenance. Because the tax hasn’t been raised in roughly a generation, it’s pretty much run dry. A month ago, the price of gas was just north of $2.50. It couldn’t go lower right?

fuel prices 2015

Absolute free-fall.

The falling price of oil and gas a has a lot of implications to the economy. But it seems they’ve now fallen so much Congress is actually considering an increase of the gas tax. And it has bipartisan support:

Low gas prices have rekindled talk on Capitol Hill about raising the federal gas tax to eliminate huge annual deficits in the federal Highway Trust Fund that pays for road and bridge work around the country.
While some top Republicans remain adamant a tax hike is not the answer, there are signs that the idea, including one from Sen. Bob Corker of Tennessee, is at least getting a fresh look.
Corker and Sen. Chris Murphy, D-Conn., have proposed raising the federal gas tax by 12 cents over two years and indexing it to inflation. To make the concept more palatable to fiscal conservatives, the measure would lower other taxes.

Indexing the tax to inflation is a great idea. This makes it easy for to tax to move with prices and wages. While a percentage tax like a sales tax might be best, anything on the table is better than nothing. An increased tax will of course drive up the cost of gas, but we won’t notice it now, and in the future it would encourage more responsible driving. Economists generally support the idea of taxing a behavior you’d like to discourage somewhat. And a flat gas tax just doesn’t work for anything.

What could be discouraging are the compromises needed to make something like this happen. Namely, reducing taxes elsewhere. In principle that’s okay; especially if the reduced taxes come with reduced spending. But in Congress it could very well mean reduced income taxes which benefit may benefit the wealthy more, and no reduced spending. A higher gas tax and lower income tax could shift more of the tax burden onto the middle and lower class, which Democrats won’t have much of an appetite for.

Such details need to be negotiated and hammered out, but for now at least Congress is talking about something it could actually fix.

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categories: cars, economics, environment, government