Federal Gas Taxes Hurt the Poor the Most

June 18th, 2019

As President Trump and Congressional Democrats hash out an infrastructure plan for the country, questions have arisen about how the government plans to pay the two trillion dollar price tag. One proposal that always seems to rear its head anytime we talk about fixing the roads is raising the federal tax on the fuel that Americans use every day.

 

The fact remains, however, that raising taxes on fuel hurts low and middle income Americans the most. They are the ones spending a larger share of their income on gasoline, and any increase in the fuel tax will take money out of their pockets to fund wasteful government spending. Any lawmaker who claims to want lower taxes for the poor should oppose any increase to the federal gas tax.

 

Government data prove that the burden of gas taxes, and green energy initiatives in general, falls on the lower income brackets. The Energy Information Administration shows how households making at least $95,000 per year spend no more than about 4% of their income on gasoline. However, those making under $18,000 per year pay at least a 6.67% share of their income on gasoline.

 

Therefore, any increase in the cost of fuel will increase the margin of income that the poor spend on gas. Raising the federal gas tax is a tax on poor families that need to pay for other necessities such as housing, food, and education.

 

Will People Stop Using Gasoline if it Gets More Expensive? Unlikely.

 

Leftists hope that by raising the excise tax on fuel, Americans will buy less of it and switch to green energy. However, the Congressional Research Service (CRS) explains how changes in the price of gasoline will not change how much of it consumers buy. This is because Americans see gas as a necessary good. It is something they use every day and it is vital to them as they commute to work, pick up their kids, and travel on vacation. The costs for the average family to substitute an electric vehicle are enormous and it would take a large tax on gasoline to change the behavior of consumers.

 

As a result, raising the federal gas tax would not change the consumption of gasoline. Instead, the government would force lower-income families to pay more for a good that is necessary to function in society.

 

This is not to mention how increasing fuel taxes will impact interstate commerce and the trucking industry. The CRS estimates that fuel costs account for 15% of total operating costs for trucking companies. With 71.5% of America’s freight shipped by truck, consumers will surely see an increase in transportation costs and, as a result, the price of goods if the government raises the federal gas tax.

 

So, while lower-income families have less disposable income thanks to the tax they see at the pump, they will also see the prices of their groceries, day-to-day goods, and other basic necessities increase. Why would any Member of Congress want to place this burden on those that can afford it the least?

 

Poor Drivers Subsidizing Rich States

 

Looking at the large-scale disparities that the gas tax causes, we can see that poorer and typically Southern states are receiving a smaller share of total federal infrastructure funds than the share their drivers pay into the fund with gas tax revenue. For example, drivers in seven of the ten poorest states (Mississippi, New Mexico, Alabama, Kentucky, Oklahoma, South Carolina, and Tennessee) pay 12.1% of the tax revenue that goes into the Highway Trust Fund, yet they only get 11.3% of the funds distributed to the states. Meanwhile, five of the ten richest states (including the District of Columbia) only pay 1.8% of the total revenue, but receive 3.8% of federal infrastructure funding. D.C. and Alaska, in particular, each receive almost six times the share of federal funds than the share of taxes they pay.

 

In essence, drivers in poor states are subsidizing infrastructure projects in rich states. Not only is the gas tax regressive at the individual level, but at the statewide level as well. This is a perverse system that redistributes money away from those who can afford it the least in order to benefit those who can afford it the most.

 

And the Money Doesn’t Even Go to Roads & Bridges

 

Furthermore, the problem with funding urgent infrastructure projects comes not from a lack of revenue, but how the government actually spends the money.

 

A 2015 Wall Street Journal piece shows how nearly 25 percent of gas taxes go towards mass transit systems in just six metro areas as well as projects for streetcars, bike lanes, hiking trails, and landscaping. And Michael Sargent of The Heritage Foundation asserts that only six percent of funds pay for the construction and maintenance of road and bridge projects with a price tag of at least $500 million. As Sargent writes, “Advocates claiming that these projects are national priorities should be forced to explain to Texans sitting in traffic that their gas money went to build a trolley line in Arizona or restore a 1918 tugboat in Ohio.”

 

Additionally, the Government Accountability Office analyzed infrastructure spending from 2004 to 2008 and found that $24.2 billion of Highway Trust Funds went to projects unrelated to highway maintenance. And over $40 billion of gas tax funds paid by drivers went towards mass transit project over this period.

 

If the HTF actually spent its money on highways, it would be 98% solvent for the next decade. This eliminates the need to increase the gas tax.

 

Raising the federal gasoline tax is raising taxes on the mother picking up her children from school, on the high school teenager driving to his part-time job, and on the elderly woman for whom public transportation is inaccessible. Simply put, gas taxes aren’t paid proportionately by the wealthy. Rather, raising the federal gas tax hits the poor the hardest. And in doing so, takes money away from those who need it the most.