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Shhh! The Big, Secret Gas Tax Increase

Tuesday March 22nd, 2011   •   Posted by Craig Eyermann at 8:40am PDT   •  

Dollar Bill Being Stuffed Into Gas Tank Keith Hennessey decided to dig deeper into why the CBO believes that President Obama’s new budget proposal will add an extra 2,300,000,000,000 dollars to the U.S. national debt over the next 10 years above and beyond what the President claims, and specifically why the budget proposal anticipates that $328,000,000,000 of that extra amount will come from the U.S. Transportation Trust Fund. It turns out that the President expects that the federal excise tax on gasoline sales will be hiked by 20 cents a gallon:

On page 188 of the President’s budget, in Table S-8, we see a section titled “Reauthorize Surface Transportation.” That section includes $235 B of spending over the next decade. It also includes a line labeled “Bipartisan financing for Transportation Trust Fund,” and shows a ten-year total deficit effect of –$328 B.

Because of this enormous “Bipartisan financing for Transportation Trust Fund” policy proposal that would reduce the budget deficit, the President’s budget is able to show increased spending for roads, bridges, trains, and airports, yet also reduce the deficit.

What, then, is the President’s proposed “Bipartisan financing for Transportation Trust Fund” proposal?

CBO apparently figured out that the deficit reduction consisted of higher revenues, but the Administration did not provide any more detail. So CBO didn’t give them credit for the –$328 B.

CBO: However, in the case of a proposal to raise new revenues to support the reauthorization of surface transportation programs, the absence of any information about the nature of the taxes or fees that might be used to produce revenues did not allow an assessment of the potential budgetary effects. As a result, CBO did not include any revenues for that proposal, which the Administration projected would raise revenues by $328 billion over the 2012–2021 period. (p. 7)

This language from CBO shows that OMB did not provide any additional back-channel information on this proposal. There’s no there there.

$328 B is a lot of money. You may think you know what this line refers to: a gas tax increase. That’s what I thought. As a rough rule of thumb, the government would raise about $1B per year for each penny per gallon increase in the tax on gasoline and diesel fuel. If we match the numbers in the OMB table, it looks like about +20 cents per gallon in 2012, growing to maybe +35-40 cents by 2021. (I’m eyeballing these numbers, so they’re very rough.)

$328 billion is indeed a lot of money. If we assume that the average amount of federal government spending per household in 2010 was $31,000, that $328 billion would represent the average federal government spending burden of 74,183,548 American households.

The AC Nielsen company, the outfit behind the ratings for T.V. shows whose job it is to figure out how many people or households are watching particular shows on television for advertisers and television networks, estimates that there are 114,900,000 households in the United States. Using that figure, the extra $328 billion that President Obama apparently expects to collect through federal gas taxes in the future would cover the entire federal spending burden of 65% of all American households in 2010.

But apparently, the Obama administration doesn’t want anyone to think that money comes from hiking gas taxes:

A gas tax fits conceptually with increased transportation infrastructure. There are occasional hints of bipartisan support for higher gas taxes to pay for more infrastructure spending (from Republicans who like to build highways). Higher gas taxes seem consistent with the President’s other policy goals, like reducing greenhouse gas emissions. And the numbers match with commonly discussed proposals for a gas tax increase.

Yet in both their conversations with CBO (I infer from the text above), and in briefings of Congressional staff (I know from friends), Administration officials were explicit: this line does not represent higher gas taxes.

I can’t come up with any policy other than a gas tax increase that might raise that much money and be described as “Bipartisan financing for Transportation Trust Fund.”

There is only one policy that fits that description. It fits perfectly with the text, the numbers, the political context, and makes policy sense given this President’s policy preferences. And yet the President’s team explicitly reject that policy.

The President’s team is trying to have it both ways: spend money on infrastructure and claim deficit reduction, but don’t take the political hit for proposing a big gas tax increase. CBO has called them on it and is not giving them credit for the $328 B of claimed deficit reduction. That’s a big deal.

Indeed it is!

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March 2011