Is a U.S. federal gasoline tax hike looming?


Comedian Chris Rock once said, “You don’t pay taxes – they take taxes.” What if you didn’t know the difference from rising market prices and additional taxes, say on gasoline? You’d likely just pay up since despite an increase in more fuel-efficient car offerings and a push towards wider electric vehicle adoption, there are not many substitutes for gasoline in cars these days. Sure we have more stringent CAFE standards coming in 2016 but that is still three long years away. So what happens right now? Well, I hate to be the bearer of bad news but I do believe the U.S. may be moving closer to raising the federal gasoline tax in an attempt to throw a lasso around our growing climate problem and possibly to also divert attention away from another major energy move expected by President Obama.

I love my country and I’m an American through and through yet I do believe we lost a bit of our national swagger in recent years. We have an aged energy infrastructure, bridges and roads desperate for repair in some areas, a Congress that struggles to play nice in the sandbox on just about anything, a massive budget deficit, a historic sequestration and a deepening climate change conundrum that won’t cure itself if we remain complacent. Considering my own view that energy can be a leading job source for years to come, Obama may finally make some bold energy policy decisions that could be disruptive on so many levels and be meant to foster that Sputnik moment we heard about during the 2011 State of the Union (SOTU) Address.

So what’s the plan? The President will likely endorse the Keystone XL Pipeline and shock environmentalists who danced in the streets post the 2012 SOTU after hearing his hard talk on climate change. The pipeline, which is basically an oilsands delivery channel for northeastern Canadian bitumen to multiple destinations in the U.S., including the vital Cushing, Oklahoma hub, is all but a lock to be approved despite. The country needs to create jobs ASAP so Obama will back the pipeline despite varying estimates on how many or how long jobs will be in place post the construction of the project which is expected to last a few years. Creating jobs in the next few years is a priority under the current administration so even temporary jobs would appear to be a win for the President, who for the record already approved the southern half of the pipeline to be built last Spring. Therefore final approval for the project is likely just a matter of time yet there may be a silver lining, at least for environmentalists?

While trying to wipe the egg off his face for approving the Keystone XL, the President may look to pull a rabbit out of his hat this Easter season and also look to raise the federal gas tax. Such a move would be aimed at curbing CO2 output to help the country meet its 2020 carbon goals which to date look very challenging to meet. Raising the gas tax would likely be seen as welcomed news by environmentalists still feeling punch-drunk from any final endorsement for the Keystone XL pipeline.

The problem with raising the federal gas tax is that contrary to the Dow Jones Industrial Average (DJIA) being in record-territory, the U.S. is actually still fighting tooth and nail to come out of the worst recession since the Great Depression. So the timing of any gas hike isn’t the best and would likely have to be phased in gradually in order to ease further pain at the pump. Yet it would be a bold move by the President to invigorate an energy industry here at home that many Americans feel is archaic and lagging countries around the world. I know I know, how can I say raising the gas tax could be a good thing? My thinking is longer-term. Innovation needs to come fast and furious to create jobs in the U.S. beyond the completion of the Keystone XL project. Therefore raising the federal gasoline tax (even slightly) may be the real Kickstarter to attract new technology advancement, venture capital investment, efficiency and a new industrial revolution lead by clean energy which will create much more lasting jobs than the Keystone XL will do on a temporary basis.

I’m no happier about a gas tax hike then the next driver is (believe me) but we need a game-changing move in this country and this may be it. Of course changing consumer energy behavior is a very tough task and people should in fact decide whether or not they want a fuel-efficient vehicle or a gas-guzzling Hummer truck. However, we can no longer sit in the middle on the subject of adopting cleaner, more sustainable energy sources.

I’m more inclined to support a methodical federal gas tax increase ONLY if the U.S. government doesn’t put a tax per mile driven in place to penalize those who enjoy traveling. Also, I’d only back a gas tax hike if it was simultaneously introduced with a government move to cap the price a wholesale gas retailer can charge consumers for paying through credit cards, another form of price gouging which takes unfair advantage of consumers at the pump. This joint move may help cushion the amount the governments “take” while also easing the amount consumers “pay”. Of course I’m a capitalist but many retailers have been taking car owners for a ride way too long. Now the government may ask you to at least consider your own rides in the near future and to me that’s not necessarily a bad thing.

Some ideas as to what to actually do with the revenues generated by the additional taxes are a) tax relief for lower income levels b) reduce capital gains taxes and c) in the event Congress can grow up and work together, funds can finally be used to renovate aging bridges and roads throughout the country.

If oil companies can charge consumers an additional 10-50 cents per gallon of gasoline for paying with a credit card, then the federal government shouldn’t be roasted for raising the federal gas take (presently at 18.4 cents per gallon) for the first time since 1993. Consider this, if you put 10 gallons of regular gas in your car and pay with your credit card you are getting charged an additional $5 per trip to the gas station in some places just for charging your purchase. Ridiculous!

At the end of the day, talk is cheap when it comes to climate change and the President needs to offset the expected Keystone XL move with a real commitment to climate change. This has me thinking we may see some disruptive decisions on the federal gas tax sooner than later. This idea was further strengthened when I learned Obama’s choice for U.S. Energy Secretary, MIT Nuclear Physicist Ernie Moniz, endorsed putting a price on carbon last year in an interview with Siemens titled “How to Cut CO2 Emissions – Even Without an Energy Policy”. So the writing may be on the wall for a gas hike unfortunately. Here is an excerpt from comments made by Moniz during that interview:

“Of all the challenges to the energy system in this country, the one that I believe remains the overarching challenge is the development of a timely response to the risk of climate change. That is even more important than energy security. And clearly, if we want to respond to the risk of climate change, then we must go to the very heart of our energy supply system and its basis in fossil fuels. In view of this, the answer to the problem is very simple: put a price on carbon dioxide. Regardless of how that is implemented, it would stimulate technology development and alter behavior through price signals. Demand management provides the least costly near term options.”

Now there are some who argue we should abandon the federal gas tax altogether since by doing so it would boost consumer disposable income at a time many Americans need it most. My take is by tossing the gas tax out the window, the government would put the onus on states to recoup the lost money for road and bridge repair. That’s certainly harder than it sounds but it could also fast-track energy innovation and cleaner transportation under the right guidance. The problem with this idea is that states may look to offset the federal gas tax with higher sales or property taxes. In the end this idea is really robbing Peter to pay Paul. The only way this would work would be if the federal government actually imposed national deadlines to upgrade roads and bridges. Therefore putting states on the clock would force repair action and create jobs since individual states would have to put a stronger emphasis on annual budgets and goals as well as look for ways to boost private investment in their jurisdictions. However, as we’ve seen with recent deadlines such as the federal budget deficit, debt ceiling and the sequester countdown, leaving politicians to meet deadlines is as smart as driving a car with no tires at the Daytona 500. That makes me think raising the gas tax is actually a smarter move than abandoning it.




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John is not only a thought leader in his industry but more importantly his ideas and how he conceptualizes complex markets is visionary and innovative. Anyone would be lucky to have him as a partner!
Peter Torrellas: National Business Development Manager for Cities and Government, Siemens