Fuel efficiency goes up, gas tax revenues go down $50 billion (or so)

A new report from the Congressional Budget Office suggests that increasing standards for fuel efficiency will leave a large deficit in highway funding:

This week, the CBO issued a new report that looked at how the upcoming, higher CAFE fuel economy rules will affect the Highway Trust Fund. The short answer? Between 2012 and 2022, the Fund will see revenues that are $57 billion lower than they would be without the new CAFE rules. The slightly longer answer:

The proposed CAFE standards eventually would cause a significant reduction in in fuel consumption by light-duty vehicles. That decrease in fuel consumption would result in a proportionate drop in gasoline tax receipts: CBO estimates that the proposed CAFE standards would gradually lower gasoline tax revenues, eventually causing them to fall by 21 percent. That full effect would not be realized until 2040 because the standards would gradually increase in stringency (only reaching their maximum level in 2025) and because the vehicle fleet changes slowly as older vehicles are replaced with new ones.

To illustrate the effect that the standards would eventually have on the trust fund’s cash flows (in 2040 and beyond), CBO examined how a 21 percent reduction in gasoline tax collections would alter the agency’s current budget projections for the trust fund, which span the period from 2012 through 2022. CBO estimates that such a decrease would result in a $57 billion drop in revenues credited to the fund over those 11 years, a 13 percent reduction in the total receipts credited to the fund.

The CBO suggests three ways to deal with the shortfalls: do nothing (i.e., keep on transferring money from the general fund), spend less on highways and mass transit or raise the gas tax (or other taxes and direct them to the Fund). An increase to the gas tax wouldn’t have to be huge. Just five cents a gallon would be enough to offset the $57 billion, the CBO says. But until Congress can agree on this simple change, there’s always the voluntary gas tax.

This isn’t idle speculation. Joel noted some commentary about this in early February 2012.

This reminds me of a recent post about the possible unsustainability of suburbia. Under the current system, we either need more drivers overall (which could then be based on population growth plus more car ownership) or people to use more gasoline (which goes against a push to be more green). Are either of these options really optimal or even desirable? Of course, the gas tax could be increased by a small amount (perhaps just a few pennies?) and the deficit would disappear. However, would this simply lead to more gas tax hikes down the road compared to the option of resetting the system so that highways are funded through a more consistent mechanism? Which politicians want to tackle this? Perhaps we are closer to a tax per mile driven than we might know?

h/t Instapundit

One thought on “Fuel efficiency goes up, gas tax revenues go down $50 billion (or so)

  1. Pingback: Vehicles miles-traveled tax in “five to ten years” as states run pilot studies | Legally Sociable

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