new CAFE standard will result in 65 billions lost revenue for road projects

[Stephane Dumas]

I don't know if it's the right section to post but I spotted that article from Autoblog who mentionned a possible unintended consequence of CAFE.
http://www.autoblog.com/2011/08/01/new-cafe-standards-will-result-in-65b-in-lost-revenue-for-road/

[SSOWorld]

Gas prices will jump to compensate so what's it matter?

[roadfro]

The gas taxes would have to jump to compensate, not just gas price. The fact that the gas tax has not been raised in several years, both nationally as well as in many states, is a big reason why most highway/transportation agencies are strapped for cash.

[Scott5114]

Why is the gas tax rate a flat number of cents per gallon instead of a percentage of the price?

[roadfro]

My guess would be that its much easier to track just how many gallons of gas are sold, rather than how many gallons at which price. Probably fairly easy to track nowadays, but not so much when the gas tax was first implemented. It would be much more of a pain to auditors to have to figure out how much gas was selling for at a particular day and time of purchase in order to figure out if the proper amount of tax was collected.

Also, having a flat rate would ensure a minimum amount of tax per gallon sold, whereas a percentage doesn't necessarily have that guarantee. Maybe not as big of a deal now, but when gas was still around $1.50 or less a gallon, a percentage probably wouldn't have yielded quite the same tax collection as that same percentage would now with gas over $3.

Just some speculation...I'm no gas tax expert.

[vdeane]

Just though of something: could the gas tax be one reason the government seems unwilling to push vehicles with higher mpg standards (in addition to big oil)?  I don't buy the auto industry fighting it (they must be bought out); fact is, people would buy cars with higher mpg if they were available and affordable (except of course soccer moms and guys who want a truck because it's "manly" or something like that).

[J N Winkler]

Why is the gas tax rate a flat number of cents per gallon instead of a percentage of the price?

My guess would be that its much easier to track just how many gallons of gas are sold, rather than how many gallons at which price.

Actually, in many states the tax on motor fuel has an ad valorem component.  For example, California charges sales tax on the price of motor fuel after state and federal excise taxes have been applied, so when you fill up there, you are in effect paying a (comparatively small) tax on a tax.

Part of the reason states use an excise tax (i.e., a set amount per physical measure, in this case volume) as their primary means of assessing tax on motor fuel is that the tax is applied at the wholesale level, either at the terminal or the rack, typically before the retail price of the fuel has been fixed.  Volume is the dominant measure in the US but it is not the only one that can be used; in Canada the tax is based on mass.  Excise rather than ad valorem taxation of motor fuel is pretty much the norm everywhere in the world that motor fuel is taxed, though there are often substantial ad valorem components to the total tax applied at the point of retail sale.

Probably fairly easy to track nowadays, but not so much when the gas tax was first implemented. It would be much more of a pain to auditors to have to figure out how much gas was selling for at a particular day and time of purchase in order to figure out if the proper amount of tax was collected.

Also, having a flat rate would ensure a minimum amount of tax per gallon sold, whereas a percentage doesn't necessarily have that guarantee. Maybe not as big of a deal now, but when gas was still around $1.50 or less a gallon, a percentage probably wouldn't have yielded quite the same tax collection as that same percentage would now with gas over $3.

In principle any jurisdiction could use the same machinery that is used to collect sales tax/VAT/GST to apply an ad valorem tax to motor fuel and use that as the primary basis of taxation.  But why would they want to do that?  Among goods that are purchased regularly and for which demand is considered inelastic, motor fuel is probably the most susceptible to wild price fluctuations, and those fluctuations are also the least susceptible to control through monetary policy.  It has always taken a fair amount of time to plan and build new roads, and it is necessary to have assurance of a certain continuing level of funding in order to manage the highway system as a whole effectively.  It simplifies financial planning for state DOTs to have a budget (including elements both of maintenance and capital construction) which is fed by a revenue stream that approximately matches the use that is made of the highway network and is steady from year to year instead of being subject to wild price fluctuation.

Before World War II, the norm was for states to hypothecate their own gas tax revenues to highway improvement, but for the federal element of highway expenditures to be subject to ad hoc appropriations which were not necessarily related to underlying federal gas tax revenues.  That was replaced by the current system of ongoing financing from a Highway Trust Fund which persists from authorization period to authorization period.  I think part of the reason for this is that the roads we build now are inherently more complicated than the ones we were building back in the 1930's, and the delivery cycle has lengthened as well because we have to satisfy more stringent environmental requirements.

In principle a state DOT supported by an ad valorem tax on motor fuel could smooth out the fluctuations by hedging, but that imposes frictional losses.  A better way of coping with the revenue impact of higher CAFE standards would be to adjust the excise tax periodically using an automatic indexation mechanism that takes into account both construction cost inflation and changes in fleet fuel efficiency.

Edit:  In addition to the economic rationale for excise taxation, my reading on fuel tax enforcement over the years suggests that FHWA and the state DOTs consider taxation at the terminal or rack to be advantageous in terms of suppressing tax fraud.  Another advantage of excise taxation which is salient in western Europe, though not the US, is that the tax is applied at only one stage of the production and distribution process and is not refundable.  This means that excise tax, unlike VAT, is immune to carousel fraud.

[oscar]

Just though of something: could the gas tax be one reason the government seems unwilling to push vehicles with higher mpg standards (in addition to big oil)?  I don't buy the auto industry fighting it (they must be bought out); fact is, people would buy cars with higher mpg if they were available and affordable (except of course soccer moms and guys who want a truck because it's "manly" or something like that).

Huh?  The government has been plenty aggressive in pushing for higher fuel-economy standards, with only modest retreats in the face of automaker pressure.

"Affordable" is the tough part -- if the purchase price for new cars/trucks goes up too much, not only do new-car sales suffer (which is what the automakers are worried about), but people keep their used vehicles going, even if they're less fuel-efficient, otherwise less eco-friendly, and lack the latest safety improvements.

There's also a tradeoff between CAFE standards and vehicle safety, since some safety improvements add weight and (all else being equal) cut fuel economy.

[triplemultiplex]

There's plenty of other methods to make up for fewer taxes collected from lower fuel purchases.
Wheel taxes.
Registration fees.
Tolls.
Parking fees.
Taxes on fuels other than gasoline/diesel once those fall out of favor.
They could tax auto parts.
They could vary your registration fee based on your non-commercial vehicle's gross weight as specified by the manufacturer to encourage behaviors.
Or just pay for all transportation out of general funds and spread the burden to everyone since everyone enjoys the benefits of transportation infrastructure.

There's a lot of options.  Take your pick of as many as you'd like.

[roadfro]

^ There's also the alternative being studied in Nevada and several other states: Vehicle Miles Traveled fee. That one is a bit more out there currently and has several implementation hurdles at present.

[vdeane]

Huh?  The government has been plenty aggressive in pushing for higher fuel-economy standards, with only modest retreats in the face of automaker pressure.

"Affordable" is the tough part -- if the purchase price for new cars/trucks goes up too much, not only do new-car sales suffer (which is what the automakers are worried about), but people keep their used vehicles going, even if they're less fuel-efficient, otherwise less eco-friendly, and lack the latest safety improvements.

There's also a tradeoff between CAFE standards and vehicle safety, since some safety improvements add weight and (all else being equal) cut fuel economy.

Then how come it's still very unusual to get above 20-25 mpg on ANY car in the US unless it's a hybrid?  Europe has had 50mpg cars since forever!

If not big oil, the only other reasons I can think of are "we've always done it this way" (seriously, that mentality will force a business to close it's doors if not careful; the auto makers are very, very lucky that there is no such thing as an international market for cars) and the price arbitrarily being jacked up for anything that isn't a gas guzzler (partially related to the earlier point, since there's a tendency to make anything new cost more).

[J N Winkler]

Then how come it's still very unusual to get above 20-25 mpg on ANY car in the US unless it's a hybrid?  Europe has had 50mpg cars since forever!

Europe has a much greater proportion of turbodiesels than we do (partly because of different emissions standards).  Heavy purchase tax is almost unknown in the US, but it is the norm in many European countries, which tends to favor the purchase of smaller cars.  Many European countries have graduated vehicle excise duty according to engine capacity or benchmark carbon dioxide emissions.  Because European countries tend to use fuel taxes to de-rate social spending instead of funnelling all the proceeds to infrastructure like we do, the cost of fuel has been much higher than in the US for a far longer period and thus has been factored into long-term decisions like car purchases.

If not big oil, the only other reasons I can think of are "we've always done it this way" (seriously, that mentality will force a business to close it's doors if not careful; the auto makers are very, very lucky that there is no such thing as an international market for cars) and the price arbitrarily being jacked up for anything that isn't a gas guzzler (partially related to the earlier point, since there's a tendency to make anything new cost more).

I don't think NIH is much of an excuse anymore.  The automakers used to have a problem with excess durability in dies and other machine tools, but I suspect that has been worked out over the past 20 years or so.  It used to be that the small cars were loss-leaders that allowed the automakers to escape CAFE penalties while continuing to sell the larger vehicles on which the profits were made.  Now the business model even for the American makers seems to be changing toward producing smaller and more fuel-efficient vehicles, but demand for such cars is buoyant right now because of $4/gallon gas and the tendency of American consumers to (irrationally) base vehicle choice on short-run gas-price trends, which gives the automakers a certain measure of temporary short-side power.

Oscar says that the Obama administration has been pushing hard on fuel economy standards, but my own impression is that they are pushing on a door nobody is trying hard to keep shut.  The long-term outlook for gas prices is that Americans will be competing with an aggressively motorizing Asia for fuel.  The CAFE standards seem to be consistent with a market expectation that in about 15-20 years Americans will be spending approximately the same amount on fuel to drive approximately the same number of miles.

[3467]

The real problem we face is the cuts coming in discretionary spending and political paralysis are going to be far bigger problesm.
As stated by many there are plenty of wasy to restructure funding. Illinois uses gambling even so we can have two good thing higher fuel economy and a raod program.
Our problem will be this budget deal. Emmanual Cleaver said last night that he didnt think we would get a new highway bill next year.
That is why I asked how MO rouet 5 a 3 lane was working out because I dont see how we are not going to come up short.
That is alos why there is a discussion thread on US 20 Tollway and other toll roads