Monday, January 05, 2009

"Brother (or Sister), Can You Spare a Dime (a Gallon)?"

The National Commission on Surface Transportation Infrastructure Financing is set to recommend a 10 cent per gallon gasoline and 12 to 15 cent per gallon diesel federal tax increase. Present levels are 18.4 cents per gallon for gasoline and 24.4 cents per gallon for diesel. The presumed extra proceeds (assuming no Laffer curve issues and demand for fuel is somewhat inelastic) would be used to fund infrastructure projects.

Two separate issues here: [1] the tax itself: I will acknowledge that the present gasoline prices will allow a tax increase to be COMPARATIVELY painless for personal vehicles but my sense is that truckers are not doing well at the moment and an additional tax will put additional pressure on the industry, probably leading to more economic concentration and long-term higher transportation costs to consumers. Translation--almost all the diesel increase will be absorbed by consumers. [2] WHAT infrastructure projects will the funds be used on? The fear is a huge porkfest; at best, the funds could be used to improve rail and bus options and improve highways in the Midwest, which seems to me to have the biggest problems keeping highways in good condition. Another good option might be to use some monies to develop alternative fuel sources such as liquidified natural gas, cellulosic biofuel (biofuels using inedible plant sources) and developing oil sands in the Rockies.


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