Even as they approved on May 22 a reduction in income taxation estimated to save taxpayers $330 billion over 10 years, US lawmakers were considering a 30% hike in the gasoline tax.
Worse, few of them were relating that proposal to a looming mandate for sales of fuel ethanol—a substance that starves the highway-construction program that gasoline taxes feed.
In response to projected deficiencies in the Highway Trust Fund, the House transportation committee proposes a 5.4¢/gal increase in the federal gasoline excise, now 18.4¢/gal.
The levy has more than doubled since 1987.
There's a better way than raising the gasoline tax to repair the Highway Trust Fund: Quit subsidizing fuel ethanol.
Ethanol derived from grain or cellulose and blended into gasoline receives a 53¢/gal exemption from the federal gasoline tax. So gasoline with the usual 10 vol % spike of ethanol is taxed at the rate of 13.1¢/gal.
Moreover, 2.5¢/gal of the reduced gasoline tax derived from gasohol goes not to the Highway Trust Fund but to general accounts.
The General Accounting Office estimates that the partial tax exemption and transfer deprived the Highway Trust Fund of $6 billion during the government's fiscal years 1998-2001. The total includes $3.86 billion from the tax exemption and $2.15 billion from the transfer.
The toll will rise under current federal law.
Accounting only for the increase in ethanol demand that will occur as several states restrict use of methyl tertiary butyl ether, GAO projects that the tax exemption alone will cost the Highway Trust Fund $13.72 billion during 2002-12. Transfer of ethanol tax revenue to general accounts will cost it $2.36 billion until the measure ends in 2005 and a further $4.56 billion if it's extended through 2012.
That's $21 billion that special favors for ethanol will cost the Highway Trust Fund through 2012.
Before thinking about raising gasoline taxes, lawmakers worried about financing road construction should end this gift to agricultural interests.
Instead, many of them from both major political parties support a mandate that will triple the size of the fuel ethanol market and further sap the highway fund.
