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Posted at 10:12 AM ET, 02/15/2011

The death of the gas tax -- and of infrastructure investment?

By Ezra Klein

whospayingconstruction.JPG

Perhaps my favorite part of the budget is the Department of Transportation's section (pdf). Readers know that I think infrastructure investment is, at this moment, the biggest no-brainer in the economy. The need is great, the workers are plentiful, the money is cheap, and the material costs are low. And the administration is proposing quite a lot of it: $556 billion over six years. That includes a $50 billion bump in the first year's funding to maximize job creation at a moment when unemployment is high, a $30 billion infrastructure bank, a $32 billion Race to the Top program to encourage states to develop ambitious and innovative reform proposals, and more. It's good stuff. The question is how we're going to pay for all of it.

Traditionally, the underlying law -- the Surface Transportation Assistance Act -- was funded by increasing the gas tax. And when I say "traditionally," I mean beginning with Ronald Reagan in 1982. Yes, Reagan increased the gas tax to fund infrastructure investment. George H.W. Bush and Bill Clinton both followed his lead on that. Then came George W. Bush, and for the first time, the law was reauthorized and given new funding without being paid for. The connection between infrastructure investment and its traditional funding source was severed.

The Obama White House is promising that they'll pay for their infrastructure investment. But they're not mentioning the gas tax. All we get is "the President is committed to working with the Congress to ensure that funding increases for surface transportation do not increase the deficit." I'm sympathetic, of course, to the political professionals in the building who don't want to try to defend a hike in the gas tax. That's unpopular, and this isn't an age when Republicans will go to their base, say, "look, Reagan did it," and partner with the administration because it's responsible policy.

But if the administration is going to duck the fight on reconnecting the Surface Transportation Act and the gas tax, it's hard to see this proposal getting funded and passed. The House GOP isn't lockstep against infrastructure investment, but they do seem to be lockstep against new revenues. Plus: The gas tax was a sensible and smart way to fund improvements in transportation infrastructure. That's why even Reagan signed onto it. It's disappointing to see Bush's irresponsible and ideological rejection of it become bipartisan policy. And though increasing the gas tax surely doesn't poll well, increasing investment in roads and highways does. At some point, a talented political team should be able to find some margin in being responsible in service of popular policy, even if some of the component parts of being responsible are painful.

Photo credit: Jack Adams/Bloomberg.

By Ezra Klein  | February 15, 2011; 10:12 AM ET
Categories:  Infrastructure  
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Comments

It is funny how Ezra deems any government program that Republicans passed as irresponsible because it was not paid for. What about Social Security, Medicare, and Medicaid? The three biggest Government programs ever.They were initiated by Democrats and are spending more money than they are taking in. Why are they immune from being called irresponsible?

Posted by: cummije5 | February 15, 2011 10:24 AM | Report abuse

"The gas tax was a sensible and smart way to fund improvements in transportation infrastructure."

Until we began to get cars that don't use much, or any, fuel per mile. Hybrids, especially plug-ins, and pure electric vehicles use very little fuel. That's where the "connection between infrastructure investment and its traditional funding source was severed".

Posted by: wiredog | February 15, 2011 10:44 AM | Report abuse

How are we gonna pay for it? If we understood our monetary system then we'd answer this question as:
1) In terms of money, simply by changing numbers on a spreadsheet at the Fed - the way we pay for everything.
2) In terms of real resources - which is the real constraint for a fiat regime such as ours - this is what this investment should be about! It will save lives and time, and must include infrastructure which helps us shift form fossil fuels.
Ezra, I won't stop bothering you until you start examining how our monetary system works and stop using nonsensical phrases such as "how to pay for it" which do not apply to fiat regimes in the sense that you are using them. Speak to Galbraith (again), Wray, Mosler and others and start getting your head around monetary sovereignty.

Posted by: pdrub | February 15, 2011 11:08 AM | Report abuse

"It is funny how Ezra deems any government program that Republicans passed as irresponsible because it was not paid for. What about Social Security, Medicare, and Medicaid? "


Yep. Obama already wasted hundreds of billions of dollars on Medicaid and the teacher bailout.

Later he cries that he doesn't have money for infrastructure. But liberals don't care about infrastructure; they just talk a lot.

Posted by: krazen1211 | February 15, 2011 11:09 AM | Report abuse

The nice thing about the gas tax is that it's so damn efficient. It directly funds infrastructure, which we need. It acts as an Pigovian disincentive to use imported oil, which is good. And it comes with its own expiration date: the day we stop using gas—something which will be extremely attractive to activists who don't like to see the introduction of taxes we'll become dependent on over time.

Yes, some future Congres will need to figure out a new way to fund infrastructure. But avoiding a hugely efficient policy because it won't last forever sounds a little like a doctor not curing cancer because then he'll have to find a new job.

Posted by: skeeJay | February 15, 2011 11:25 AM | Report abuse

Well maybe Republicans could be enticed to sign on to a gas tax increase if Davis-Bacon union requirements on federal projects were repealed. Then our tax dollars could go a lot further.

But Obama doesn't care about improving the common good, he cares about taking care of his political constituencies. Why should the Republicans help him do that?

Posted by: ElGipper | February 15, 2011 11:42 AM | Report abuse

oh come on now Ezra its not dead. They'll just hide it somewhere else. that's what they do.

Posted by: visionbrkr | February 15, 2011 12:07 PM | Report abuse

pdrub, how does it make any more sense to tie currency to the value of gold, the supply and value of which is more variable and less controllable than an agreed upon paper currency?

This is just about the dumbest policy point for anyone to hang his hat on these days.

Also, more infrastructure, please - for god's sake, finish the repairs and improvements to the Beltway, already! - but let's be smart about it. And a gas tax, a.k.a. a user fee, is fine.

What I see is that as a nation, we just don't seem to be interested in paying for the things we want. That's pretty sad, from an ethical standpoint, but understandable from a rational standpoint. What I don't think a lot of people get is that "rational" doesn't always equal "best."

Posted by: arm3 | February 15, 2011 12:19 PM | Report abuse

Carter had just finished with the new CAFE standards that almost doubled gas mileage (cut in half gasoline per mile.).

I agree that gas taxes make sense for funding transportation and supporting more efficient vehicles.

Posted by: bakho | February 15, 2011 12:20 PM | Report abuse

@arm3: "how does it make any more sense to tie currency to the value of gold"

Sorry, where did you see me suggesting anything like that?
Re: more infrastructure - both repair and MORE infrastructure is needed. For example, we could employ all the laid off construction workers in weatherizing our homes and preparing for adverse effect of climate change. We could build high rail systems to reduce car and air travel. We could expand other forms of public transportation. Etc etc. But we won't do it because we mistakenly think we "have no money" - which is not true for a fiat currency regime, in which the govt creates the money out of thin air (the only constraint being inflation - real resources in other words.)

Posted by: pdrub | February 15, 2011 12:40 PM | Report abuse

"- which is not true for a fiat currency regime, in which the govt creates the money out of thin air (the only constraint being inflation - real resources in other words.)"

Ah, okay. This is usually code for "bring back the gold standard." But you're proposing taking advantage of the system as-is. I recall an SNL skit with Dan Akyroyd as Jimmy Carter saying that he would just call up the treasury and say "Hi, this is Jimmy. Why don't you just print up some more of those $20s?"

At the end of the day, it creates inflation, and we can't inflate our way out of this thing - see Zimbabwe. This also has very negative implications for exchange rates, which in turn is a bad deal for those nations (China) who own so much of our debt. In the near term, unless we actually decide to start paying for our own toys, we aren't at liberty to cut that flow of funds off.

Posted by: arm3 | February 15, 2011 12:50 PM | Report abuse

Great post, Ezra. Unfortunately, at this moment, higher gas taxes -- and higher taxes generally on those best able to afford them --- need a constituency beyond the pundit class as our politician (rationally or not) are lily-livered on taxes generally. Why is there no organization trying to build public opinion on this? There should be a website like "raisethegastax.org" or something with petitions and online organizing, etc. If anyone's aware of an organization like that, let me know!

Posted by: pbasso_khan | February 15, 2011 1:33 PM | Report abuse

cummije5, it would be nice to come on here for once and not find blanket (and completely unsupported statements) about "Ezra views all" this or "Ezra always does" that. He never said any of the things you're asserting, and he certainly never has applied a different standard to reviewing the budgetary affects of Republican and Democratic initiatives. Social Security is solvent until 2037. And as for Medicare, if you have actually read this blog, Ezra has repeatedly discussed Medicare's fiscal problems and the rising costs of health care as the largest contributor driving our long-term debt. This is a policy blog, not partisan tit-for-tat, particularly where you cannot support a single thing in your tit-for-tat.

Posted by: pbasso_khan | February 15, 2011 1:40 PM | Report abuse

And that goes for you too, krazen1211: "liberals don't care about infrastructure; they just talk a lot."

Where on earth did you pull that from? It sure sounds insulting, but it has no basis in reality. Almost every politician in all parties cares infrastructure if only for the photo ops. Why do you think Congressmen who voted against the stimulus still took credit for the projects built under it. Ever hear of Robert Moses in the FDR days? Eisenhower and the interstate highway system? Infrastruture is not much of a partisan issue; sure paying for it can get partisan, but the desire for it really isn't.

Posted by: pbasso_khan | February 15, 2011 1:50 PM | Report abuse

@arm3: "At the end of the day, it creates inflation"

Not, it doesn't have to anymore than pressing on the gas pedal have to land you in a ditch. It might if you're a bad driver. No system is fool-proof. I suggest you start educating yourself about our monetary system by reading this, for example:
http://moslereconomics.com/wp-content/powerpoints/7DIF.pdf
Re: Wiemar and Zimbabwe, not enough space here to address, but in short their situation is nothing like ours. You might want to check out this:
http://www.nakedcapitalism.com/2010/05/mmt-fear-of-hyperinflation.html

Posted by: pdrub | February 15, 2011 2:01 PM | Report abuse

"It is funny how Ezra deems any government program that Republicans passed as irresponsible because it was not paid for. What about Social Security, Medicare, and Medicaid? The three biggest Government programs ever.They were initiated by Democrats and are spending more money than they are taking in. Why are they immune from being called irresponsible? "

What the hell are you taking about? Social security has had a surplus for 30 years. And Medicare is payed for with medicare pay roll taxes. You're a clueless idiot who has no idea what shes talking about.

Posted by: Hamtree | February 15, 2011 2:20 PM | Report abuse

How have Medicare parts B and D been funded though? Pretty sure it's through general funds/taxes.

Posted by: arm3 | February 15, 2011 2:31 PM | Report abuse

Not sure about part B, but part D (the prescription drug benefit) was not paid for though it didn't seem to bother people at the time. To be sure, it had other problems as well (i.e. the since-closed doughnut hole).

Posted by: pbasso_khan | February 15, 2011 2:34 PM | Report abuse

pbasso_khan

Ezra has used the term irresponsible to refer to the Bush tax cuts, the Prescription drug bill, and now the Bush era transportation act. He has never used that term to describe Medicare, Medicaid, or Social Security. Ezra is as partisan as they come in his "analysis". You can use the Google to confirm this.

As far as Social Security being solvent until 2037, I would like to know what your definition of solvent is. Social Security is paying out more money TODAY that it is taking in. Where is that extra money coming from? We are borrowing it from China. There is no real trust fund.

Posted by: cummije5 | February 15, 2011 3:04 PM | Report abuse

That is completely false. Social Security currently takes in more money than it pays out. I'm sorry that your authority on the subject seems to be Michele Bachmann.

Posted by: Progny1 | February 15, 2011 3:26 PM | Report abuse

cummije5, first of all, you're upset because he called those policies "irresponsible"? Is it that particular word you don't like? For the record, Ezra has said that renewing the Bush tax cuts in full or in part (i.e. which was undeniably agreed to by Obama and two Dem. houses of Congress) is problematic because they are unpaid for. To be fair, I don't know if he said this move was "irresponsible," but he has consistently raised red flags about this.

Second of all --- unlike Bush tax cuts, transportation spending, and prescription drug coverage --- the specific entitlement's you're upset about were *designed with* specific sources of funding (e.g. payroll taxes, etc.). None of the Bush-era policies was offset by either new revenue or spending cuts. There are undeniably long term problems in making sure expeditures for SS/Medicare/Medicaid stay in line with funding sources for them. But they are not paid for --- nor were they were they EVER designed to be paid for --- by deficit spending. As Social Security is solvent until at least 2037, your assertion that it's being paid for by China is pulled out of thin air. SS is solvent, and by definition, paid for.

I don't think any of us need Google's help in discerning Ezra's beliefs. He never pretended to *not* have his own biases, and in fact, he's pretty transparent about them.

Posted by: pbasso_khan | February 15, 2011 3:35 PM | Report abuse

O.K liberals. For those of you who don't believe that Social Security is now paying out more than it is taking in, please read the Trustees Report at: http://www.socialsecurity.gov/OACT/TR/2010/II_project.html#115562

Now some of you will say that the extra money is being paid for with assets from the trust fund. The trust fund does not have any real assets in it, just worthless IOU's. The extra money needed to pay the social security obligations is coming from the general fund. Unfortunately there is not enough money in the general fund so we have to borrow it. Most of the borrowed money comes from China.

Posted by: cummije5 | February 15, 2011 4:31 PM | Report abuse

O.K. cummije5: Did you read what you're linking to? It says, "For 2010 through 2024, trust fund income, including interest income, is more than is needed to cover costs, so trust fund assets will continue to grow. Beginning in 2025, trust fund assets will diminish until they become exhausted in 2037."

In other words, Social Security is solvent until 2037.

Also, from the "Overview" of the Trustees Report: "Under the long-range intermediate assumptions, annual cost for the OASDI program is projected to exceed tax income in 2010 and 2011, to be less than tax income in 2012 through 2014, then to exceed tax income in 2015 and remain higher throughout the remainder of the long-range period. The combined OASI and DI Trust Funds are projected to increase in dollar level through 2024, and then to decline and become exhausted and thus unable to pay scheduled benefits in full on a timely basis in 2037."

Again, Social Security is solvent until 2037.

Granted, there does appear to be a short-range problem on Disability Income, but the Trustees recommmend a simple reallocation of the payroll tax as was done in 1994.
http://www.socialsecurity.gov/OACT/TR/2010/II_highlights.html#76455

I do not see anything about borrowed money from China.

Got anything else, cummije5?

Posted by: pbasso_khan | February 15, 2011 4:48 PM | Report abuse

pbasso_khan

Apparently you have trouble interpreting charts and graphs. This article in the New York times simplifies the numbers so that liberals can understand them.
http://www.nytimes.com/2010/03/25/business/economy/25social.html

Posted by: cummije5 | February 15, 2011 4:58 PM | Report abuse

My name is cummije5 I'm a clueless tool with a 5th grade education.

Posted by: Hamtree | February 15, 2011 5:13 PM | Report abuse

*Sigh* cummije5

From your handy New York Times article: "But partly because of steps taken in [the 1980s], and partly because of many years of robust economic growth, the latest projections show the program will not exhaust its funds until about 2037."

Referring to the Social Security "trust fund," "The balance is currently about $2.5 trillion because after the early 1980s the program had surplus revenue, year after year. . . . For accounting purposes, the system’s accumulated revenue is placed in Treasury securities. In a year like this, the paper gains from the interest earned on the securities will more than cover the difference between what it takes in and pays out."

"The system, [Actuary Stephen C. Goss] added, has a balance of about $2.5 trillion that will take decades to deplete. Mr. Goss said that large cushion could start to grow again if the economy recovers briskly."

Now, maybe, cummije5, you're upset because the "Treasury Securities" are held in bulk by China. But that's a systemic problem that has nothing to do with how Social Security was designed. It's still a pay-as-you-go program. I would also tell you that my late father from Brooklyn, NY owned treasury bonds before he passed away. So maybe we should be upset that Social Security was being twice financed by my dad (first through his own payroll taxes and second through his investment).

It's a moot point. Whoever owns the bonds. It's pay-as-you-go. We can argue about how it's paid for, but it's paid for. Social Security is solvent until 2037. Period.

The tax cuts and other programs Ezra has flagged are not paid for. No pay go. No money. Just added to the deficit. Now that's, dare I say, "irresponsible."

Posted by: pbasso_khan | February 15, 2011 5:29 PM | Report abuse

Yeah, cummije5, as they say in my business, don't quit your day job.

Posted by: nickthap | February 15, 2011 6:01 PM | Report abuse

What makes the transportation argument so funny is that every Republican who does NOT want to fund the infrastructure investment will be the first and loudest people to complain if any roads are not fixed and/or any public transportation is not PERFECT

Hypocrites

Posted by: Bious | February 15, 2011 10:58 PM | Report abuse

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