A coalition led by three prominent Americans has crafted a mechanism it believes will offer a politically palatable approach to raising fuel taxes. The proceeds from these tax would help pay to repair and rebuild the nation's aging infrastructure.
The proposal, laid out on Monday by the Leadership Initiative for Transportation Solvency, would assess a 5-percent ad velorem tax at the production or importation level should world oil prices increase. It would also levy a variable tax of as much as 43 cents per gallon on gasoline and diesel purchases at the pump should world oil prices decline. Proceeds from the levies would be earmarked for infrastructure improvements.
The proposal is the collective brainchild of former U.S. Senator Bill Bradley; former Pennsylvania Governor and Secretary of Homeland Security Tom Ridge; and former U.S. Comptroller General David Walker. It is aimed at curtailing the demand for oil when prices are rising in order to avoid the damaging economic impact of a price spike. At the same time, the tax at the retail level would help stabilize prices and offset revenue reductions if oil prices decline.
In a 129-page report, prepared in conjunction with The Carnegie Endowment for International Peace, the coalition said that in the event of extreme oil price fluctuations, the ad velorem tax could be recalibrated to stabilize transportation fuel costs while continuing to fund needed transportation initiatives. The retail levy, as well, would be adjusted depending on the direction of oil prices at a given point in time.
The retail levy would be reduced or even eliminated during periods of rising prices, thus sparing American consumers and businesses—notably truckers—further pain at the pump. At the same time, a reduction in the tax at the pump would be offset by the 5-percent levy at the production or importation stages, the coalition said.
"Benefits of this strategy include distributing revenue responsibilities along the oil value chain from production to consumption; buffering the impact of external events and oil supplies over which the United States has no control; and stabilizing fuel prices for both producers and consumers for long-term market equilibrium," the coalition said.
The coalition's proposal came just days after House Republicans led by Rep. John L. Mica (R-Fla.), chairman of the House Transportation and Infrastructure Committee, unveiled a six-year, $230 billion proposal to re-authorize funding for the nation's transportation programs. The Mica proposal, which is being crated in legislative form as of this writing, does not call for fuel tax increases because Congress will not support it.
The federal tax on motor fuels has not been raised since 1993.
