I started writing this several months ago when gas prices started rising again and everyone was complaining about the oil companies and their huge profits. The topic was spotlighted again when President Obama made his recent remarks that apparently credited the mere existence of roads for all successful businesses in this country. His comments added a new angle to the favorite trump card argument of every Big Government type, “what about the roads?”. Enjoy.

Most people that I talk to aren’t aware that there is a Federal excise tax imposed on every gallon of clear diesel or gasoline purchased by consumers in this country, there are also variable state, county, and municipal fuel excise taxes. This excise tax is not a sales tax. It is also quite sizable…..

“The United States federal excise tax on gasoline is 18.4 cents per gallon (cpg) and 24.4 cents per gallon (cpg) for diesel fuel. On average, as of April 2012, state and local taxes add 31.1 cents to gasoline and 30.2 cents to diesel for a total US average fuel tax of 49.5 cents (cpg) per gallon for gas and 54.6 cents per gallon (cpg) for diesel.” – courtesy of Gas Price Watch.com (emphasis added)

These excise taxes supposedly exist for the purpose of building and maintaining roads. They are essentially usage taxes that are intended to fund the roads and infrastructure that your vehicle needs to operate on.

If you have ever argued with a big government type about the elimination of income and property taxes they immediately whip out their go to argument, “what about the roads?!”. Clearly, they are not educated in the way that the taxes they advocate are intended to be allocated.*

I assume that if you read this blog regularly and were not previously aware of this fuel excise tax, you are most likely not shocked to hear of its existence. (After all, isn’t everything taxed?)

Now that you know the Federal, State and local Governments in America make money off of every gallon of gas sold you have to question why Big Government types argue for federally mandated higher MPG standards for cars when higher MPG’s mean less fuel used. Logically if less fuel is bought then less fuel tax is collected.

Isn’t this a direct contradiction?

I have to ask these people, “What about the roads?!”.

They obviously don’t see that supporting Federally mandated higher MPG standards will reduce the government excise tax revenue thus depleting funds available for road work and repair. Unfortunately in this scenario there are likely just as many cars on the road as before, but there is less money coming in to maintain the roads. This inevitably leads to the unchecked degradation of infrastructure.

This same consequence can of course occur naturally in a free market as well. Let’s assume MPG standards are not artificially set by the Federal Government. We can also safely assume that the price of fuel will fluctuate as a result of supply and demand and other market factors.

When fuel prices trend upward the demand for inefficient vehicles goes down. As more fuel efficient vehicles take to the streets the consumption of gasoline goes down. (additionally due to higher prices people will car pool, drive less often, etc., further reducing consumption) As the consumption of gasoline goes down the tax revenue from fuel excise taxes goes down as well.

In this scenario, the reduced tax revenue for road maintenance is offset by the fact that less cars are on the road traveling less miles. As a result, less maintenance and construction is required due to less wear and tear.

The major difference between the government regulated MPG scenario and the free market MPG scenario is that:

The reduction of consumption is artificial when Federally mandated MPG standards are imposed – The market did not influence auto makers and buyers to have higher MPG’s, government regulation did. This can negatively effect the price of vehicles as well as artificially diminish tax revenue for road construction and maintenance.

Vehicle Prices:

With MPG mandates imposed on auto manufacturers the price to produce a vehicle goes up artificially. The automaker is required to invest more dollars into each unit it produces in order to meet the new mandates. To recoup these additional costs, the manufacturer must raise the selling price of each unit. In some cases the new high MPG vehicle may be a flop because the market does not demand it, in which case the automaker suffers a huge loss from manufacturing a vehicle that nobody will buy. (See the Chevrolet Volt)

Without MPG mandates if the market demands vehicles with higher MPG’s then the producers are capable of selling vehicles at a higher price that the market is willing to bare because they are supplying a demand for higher MPG’s. Higher demand with lower supply means that each unit is worth more (scarcity). This increased price per unit justifies the additional expense of each unit on behalf of the producer. (See the Toyota Prius several years ago as an example)

Excise Tax Revenue: The MPG mandates cause excise tax revenue to decline as described earlier in the post.

To combat the diminishing tax revenue resulting from lower consumption and better MPG’s the government in all of its wisdom is mulling creating a mileage tax. That’s right not only will you be taxed for buying your car, owning your car, and buying your fuel; you will get the pleasure of being taxed for driving your car! Eventually the mileage tax will lead to a limit on miles that can be driven. Because once the government tracks how much of something you are doing, they ultimately want to be able to tell you to do it less or face the consequences.

What is the point of all this?

My point here is that when you advocate less tax there are “intellectuals” who quickly attempt to paint you as a hypocrite over issues such as the funding of public roads. The goal is to claim that you take advantage of what you rail against, as a result your argument is invalid in their eyes. It is the typical strategy of discrediting the messenger and avoiding the message.

Typically, the people who rush to call me a hypocrite because I want less tax but drive my vehicle on the road are the same people seeking to limit the funding of roads through unnecessary and harmful Federal mandates such as higher mpg standards, mileage taxes, etc.

Aren’t they the hypocrites?

Yes they are.

What’s more troubling about the Federal Excise Tax on fuel in particular is the blatant disregard for making prudent spending decisions and complete lack of financial oversight. (Surprised?)

As usual government takes your money for one purpose then just uses it for whatever the hell they want, mostly funding the bureaucracy. According to Wikipedia, in 2007 Transportation Secretary Mary Peters stated that 60% of federal excise tax collected went toward the funding of road projects. The remaining 40% went toward earmarks. (I could not find statistics from the current administration)  The following are a couple of earmarked projects from the 2005 Highway Funding Bill.

– $8,000,000 to build a parking garage at a hospital in Harlem, New York

– $223,000,000 for the “bridge to nowhere” in Alaska.

The above examples are just a drop in the bucket of Government waste and fraud. I believe it has become clear that Government will not keep itself in check. Without the vigilance of the public to keep them honest and responsible the Federal Leviathan will undoubtedly continue on its path to totalitarianism….but at least we will have roads.

For a stunningly comprehensive analysis of the downfalls of Federally controlled road projects click here.

* I do not believe that government agencies are either the best or cheapest method of building and maintaining roads. When private firms compete for the work the taxpayer benefits drastically.

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Comments
  1. Jeff says:

    Enemy Expatriation Act. Please blog about this one. Kept me up last night.

    • swburke21 says:

      I see the “Enemy Expatriation Act” as the logical progression of the police state resulting from the passage and signing of the NDAA. People poke fun at the idea of a slippery slope in regard to legislation. They can’t seem to imagine what will eventually creep through as a result of the passage of prior legislation. This is just more proof though that when you give the government an inch they will take a mile.

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