An idea whose time has come: raise the federal gas tax. Also, an important, new-ish trend.

December 16th, 2014 at 9:20 am

Here’s an argument–raising the federal gas tax that’s been stuck at $0.18/gallon since 1993–that IMHO should be highly resonant right now with progressives, environmentalists, fiscally responsible types, those with common sense, and anyone else I’ve left out. Anyway, it’s over at PostEverything. There’s even some bipartisan support for the idea.

Let me add two pictures I left out of the piece. First, FWIW (and who knows, really?), here’s EIA’s forecast for gas prices over the next year. If they’re right, that’s another reason why a slow phase in of a small increase shouldn’t hardly bite consumers at all.

eia_gas_fc

Second, and much more importantly, here’s a really remarkable trend that I’ve mentioned before but has been extremely persistent: the flattening of vehicle miles traveled since the last recession.

veh_trav

Source: US Federal Highway Administration. I’ve seasonally adjusted the data and run a filter to identify the trend.

I’ve run a smooth trend through the data but the flattening is evident either way. Obviously, income loss has played a role but even while you can see some cyclicality in the series, there’s nothing in there that comes close to the recent flattening (the trend reveals a slight uptick toward the end but you’ve got to squint to see it).

So what’s going on here? I don’t know and it certainly warrants some research, as this is an important change with economic and even cultural implications. I will offer an hypothesis: it’s what Ben Spielberg and I call “the inequality wedge” at work. This recovery has been unique, even relative to past deep recessions like the early 1980s double dip, in how little income has reached the middle class, as the wedge of inequality has diverted growth to the top of the scale.

This is known, but all the elasticities it triggers are not. For example, car travel at the margin may be more of thing for middle and lower-income than higher-income households. Since the FHA (the source of the data in figure 2 above) collect data by state (I believe) perhaps some enterprising researcher or student out there could create a panel data set of vehicle miles traveled in states over time to generate the variance necessary to see how that correlates with various relevant economic measures, like state-level wage, median income, or inequality measures.

[Brad Plumer also makes this argument, and very effectively.]

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2 comments in reply to "An idea whose time has come: raise the federal gas tax. Also, an important, new-ish trend."

  1. Tyler says:

    I’d rather we did a federal income tax holiday which would not expire until the national unemployment rate falls to four percent.


  2. Roger Chittum says:

    Surely the flattening of employment growth since 2008 is a significant contributing factor. Over the last 30 years, 27-31% of household vmt have been to and from work. http://nhts.ornl.gov/2009/pub/stt.pdf Table 6. Vmt for social and recreational purposes are about the same but more variable. Ibid. People out of work don’t drive to work and they have less money to spend on social and recreational trips.


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