Don't Get Used to $2 Gas Prices as the Government Wants a Bigger Cut

Gasoline prices in the U.S. have come tumbling down thanks to the big sell off in the price of oil. This already saved American drivers $14 billion in 2014 , or about $115 per household according to AAA. Even bigger savings are expected in 2015 as the average American could save $234 at the pump this year , if current oil prices persist. However, a rebound in the price of oil isn't the only thing that could put the brakes on the potential savings Americans might see at the pump this year. That's because state and federal governments are oogling those dollars as the lawmakers from both sides of the isle are contemplating raising gas taxes in order to pay for highway improvements.

Why there is growing chorus for increased gas taxes

The Federal gas tax hasn't moved from its perch of $0.184 per gallon in more than 20 years. However, with gas prices plunging there is a new openess in Washington to raise the tax to pay for increased infrastructure investment, which should create additional jobs. Many argue that the increase is necessary because the volume of gasoline being used in America has weakened over the past few years. As this next chart shows supplies of gasoline peaked last decade.

Source: U.S. Energy Information Administration

Weak demand for gasoline is a function of several factors. Americans have simply stopped driving as much due to demographic changes, as well as the fact that more Americans are disappearing from the daily commute due to the rise of telecommuting. These trends when combined with the relatively high gas prices over the past few years has resulted in fewer miles being driven as we see in the following chart.

Source: EIA.

As the chart on the right noted the average American is driving less per year as per capita miles traveled fell from a peak of more than 13,000 per year in 2005 to roughly 12,000 miles in 2014. While this trend could reverse with the economy beginning to improve, along with lower gas prices, it doesn't mean that the volume of gasoline used in the country will increase, which is important when considering the fact that gas taxes are volume based.

The reason why gasoline volumes aren't likely to increase is because our cars and trucks have become much more fuel efficient, which is a trend that won't end anytime soon as CAFÉ standards continue to increase. Further, the rise of hybrids and electric vehicles will also continue to act as a weight keeping down gasoline volumes in the U.S.

Funding a growing problem

Lawmakers see these trends keeping a lid on gasoline volumes and therefore gasoline taxes, which are necessary for highway improvements. That's why there's a growing interest to increase gas taxes now that the price of gas has fallen as the backlash from consumers wouldn't be quite as intense as it would be if gas prices were higher. The additional tax revenue would help to increase highway funding, which has fallen from more than 1% of GDP in 1960 to 0.49% of GDP in 2013.

Source: Flickr user Katie Tegtmeyer .

By having more money available to fix roads the country can repair aging transportation infrastructure, which continues to weaken. In 2013 the American Society of Civil Engineers gave America's roads a D grade on its report card. The Society says that 42% of the country's major urban highways remain congested, which cost the economy $101 billion in wasted time and fuel each year. It found that the current investment rate is insufficient and will result in a further deterioration in road conditions over the long-term. In order to fix the problem the Federal Highway Administration estimates that it needs another $170 billion per year to make the needed improvements.

Then there are the nation's more than 600,000 bridges, which have an average age of 42. Overall, the Society gave America's bridges a C+ grade, however, it does note that one in nine is structurally deficient. Meanwhile, the Federal Highway Administration is only spending $12.8 billion of the estimated $20.5 billion that's needed each year to maintain America's bridges.

Only a matter of time

Lawmakers see a clear solution to fixing the nation's aging roads and bridges, which is to increase the federal gas tax for the first time in more than two decades, while many states are also considering increases in state gas taxes for the same reasons. It's a solution that many lawmakers believe not only could create additional jobs, but would also ease congestion, which would help to improve business conditions as it would boost productivity by improving the flow of food and services on our nation's roads. The drop in gas prices now gives lawmakers a real incentive to enact new gas before consumers get to used to lower prices.

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The article Don't Get Used to $2 Gas Prices as the Government Wants a Bigger Cut originally appeared on

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