The Tax That Dare Not Be Hiked

In theory, advocates of an infusion of spending to fix the nation's crumbling roads and bridges have found the perfect political moment.

Fuel prices are plunging to their lowest level in years. The Highway Trust Fund is broke, and Congress faces a spring deadline to replenish it. The obvious answer—the only answer, according to many in Washington—is to raise the 18.4 cent-per-gallon gas tax, which hasn't gone up in more than 20 years. Since prices at the pump have dropped more than a dollar per gallon in some areas, drivers would barely notice the extra nickel they'd be forced initially to pay as a result of the tax hike. That wasn't true until recently: For years, the pocketbook punch of the Great Recession combined with gas prices that peaked above $4 made an increase both politically and economically untenable.

Yet even with prices at a four-year low, the odds of Congress touching the gas tax are as long as ever. "I think it’s too toxic and continues to be too toxic," said Steve LaTourette, the former Republican congressman best known for his close friendship with his fellow Ohioan, Speaker John Boehner. "I see no political will to get this done."

Taxes on gasoline and diesel fuel have financed the Highway Trust Fund since its inception under President Eisenhower in 1956. Congress periodically raised the levies for decades with bipartisan support, but it has not done so since 1993, when an increase was included as part of President Clinton's economic plan, which passed both the House and Senate by just a single vote. Neither George W. Bush nor Barack Obama have supported increases in the gas tax. In 2008, the trust fund became insolvent and has since been plugged by transfers from the Treasury.

Advocates on and off Capitol Hill are mounting a new push to lift the gas tax as Republicans prepare to assume full control of Congress in January. Funding for the Highway Trust Fund will run out May 31. On 60 Minutes last month, officials including former Transportation Secretary Ray LaHood and former Pennsylvania Governor Ed Rendell used the specter of a major bridge or highway collapse to warn of the need for new investments. LaHood, a Republican who was once rebuked by the Obama White House for suggesting a switch to a mileage-based tax, is now going public on the gas tax, in his typically colorful style. "The best argument for doing it is is that America is one big pothole," he told me in a phone interview, "and America’s infrastructure is in the worst shape that we’ve seen in decades."

At the Capitol, Representatives Earl Blumenauer, an Oregon Democrat, and Tom Petri, a Wisconsin Republican, summoned a different image to make their case: Ronald Reagan. Standing next to a cardboard cutout of the conservative icon, the congressmen pointed to the gas-tax hike Reagan signed in 1982 as an example of a time when Republicans and Democrats joined to support infrastructure. They propose increasing the tax by 15 cents over three years and then indexing it to inflation. so that Congress would not have to keep returning to the issue every few years. "That would solve the funding problem," Petri said by phone after the event.

Petri took a more optimistic view than LaTourette of the politics of raising the gas tax, arguing that the sustained drop in fuel prices would change the minds of his more conservative colleagues, particularly if they reach $2 a gallon in more and more areas. "I don’t think there’s any question that it’s going to change the dynamics and make it much more palatable," he said. But he warned of a lag between the politics and the market. "It sometimes takes a little while for institutions to adjust to changes in the real world. So it may not happen instantly."

While Petri gives the gas-tax proposal a bipartisan imprimatur, his support shouldn't be mistaken for a major act of political courage. After 36 years in the House, Petri is retiring from Congress in a few weeks, forcing Blumenauer to start anew in January. While he backed the tax increase under Reagan in 1982, he said he only recently endorsed Blumenauer's legislation. Both lawmakers have also blamed the Obama administration for opposing any increase in the tax, a move they said discouraged lawmakers in both parties from publicly embracing it. "Republicans have tended to shy away from sticking their head up too far, because the feeling was, you do it and then the president cuts you off at the knees," Petri said.

In a separate interview, Blumenauer said the administration had recently "dialed back" its opposition, with senior officials telling lawmakers that if Congress could somehow pass a gas tax hike, he would sign it. Yet just a few hours after his and Petri's press conference, Obama himself seemed to put their plan back on ice. At a business roundtable at the White House, FedEx CEO Frederick Smith asked Obama why Congress couldn't just raise the gas tax and solve the infrastructure problem. "In fairness to members of Congress, votes on the gas tax are really tough," the president replied, after first chuckling that if it he were in charge on Capitol Hill, "I probably already would have done it."

He said he'd work with Republican leaders on a short-term plan to refill the trust fund but for the long term, Congress probably needed to turn away from the gas tax and find another "dedicated revenue source for funding the infrastructure that we need that is not so politically frightening to members of Congress that it’s reliable." A report earlier this year from the left-leaning Center for American Progress suggested shifting from a tax on fuel to a fee tied to mileage, but it's not clear that idea would garner any more political support than the gas tax.

"The gas tax hasn’t been increased for 20 years. There’s a reason for that," Obama said. Told of the president's remarks, Blumenauer—a man known for biking around Washington in a bow tie—practically jumped through the phone in frustration. "That is creating a self-fulfilling prophecy!" he snapped. He and other advocates argue that the political impossibility of raising the gas tax has long been overstated. The issue already has an impressive array of outside backers, including labor unions and environmentalists as well as erstwhile GOP backers like the U.S. Chamber of Commerce. Blumenauer also pointed to public support for fuel-tax increases at the state level, including in places like Wyoming and New Hampshire that have historically been hostile to higher taxes. "It's just not true that it's too politically difficult," he said.

The most politically promising alternative to raising the gas tax would use revenue from repatriated corporate profits to fund infrastructure projects. Multinational companies are estimated to be keeping $2 trillion in overseas accounts to avoid the high corporate tax rate in the U.S., and repatriation would offer them a tax break in exchange for bringing the money home and investing it domestically in infrastructure bonds. Obama has suggested linking a broader corporate tax overhaul with new infrastructure spending, and the repatriation idea was included in a proposal from the chief House Republican tax-writer, Dave Camp, last year. But unlike a tax rate indexed to inflation, that plan would only cover the Highway Trust Fund for a few years. A permanent change to the gas tax, LaTourette said, is "the only way you’re going to sustain [the fund] into the future."

As for the Republicans who will be taking power in January, at least one in the Senate, Bob Corker of Tennessee, supports increasing the fuel tax. In the House, however, the new chairman of the Ways and Means Committee—which has jurisdiction over taxes—is Paul Ryan, the venerated conservative policymaker and 2012 GOP vice-presidential nominee. Ryan wants tax reform but has never advocated for a hike in the gas tax, and a spokesman wouldn't comment on his position. Asked whether he had any hope that Ryan would come around, Petri harkened back once again to 1982: "Well, he's expressed admiration for Ronald Reagan in the past."

To supporters of the gas tax and the nation's longterm commitment to infrastructure, the dim hopes for change, even in the face of low fuel prices, are baffling but not surprising. It's just one more frustrating example of a political culture paralyzed by fear of the voters' wrath, whether imagined or real. LaTourette said he had dinner recently with several former colleagues who are still in Congress and asked them whether an increase in the tax stood any new chance. "They said no," he recalled. "There just aren't the votes."