Right data - gasoline taxes

National Review, June 3, 1996 by Ed Rubenstein

SPRING is in the air. Gas prices are up. So what else is new? Well, a few things: A particularly harsh winter in North America along with flat OPEC oil production has cut crude-oil inventories to an 86-day supply -- the lowest level since 1979. From February to mid April, the price of oil -- the raw material from which gasoline is made -- was bid up by more than 40 per cent. As a result, the seasonal jump in gasoline prices was noticeably worse this year.

Over the long haul, however, gasoline and crude-oil prices don't always move in sync. In 1950, a barrel of oil cost $2.50. Even after adjusting for inflation, the current cost, $22 per barrel, is 38 per cent higher than in the 1950s. But gasoline is far cheaper, in real terms, than it was then. Thanks to technology developed by oil companies, refineries are able to squeeze more gallons of gas out of the same barrel of oil. Consumers are the beneficiaries.

However, gas taxes have robbed U.S. drivers of these gains. Combined federal and state gas taxes now average more than 40 cents per gallon. Since 1980, the pre-tax price of gasoline has plummeted, but gas taxes have gone up 66 per cent in real terms. Moreover, these taxes aren't used for their stated purpose. For nearly thirty years the Highway Trust Fund has collected more gas-tax revenues than it has spent on highway construction and maintenance. (At the end of 1995, the surplus was a whopping $19 billion.) Budget laws allow the Trust Fund to ''lend'' its surplus to the Treasury, where it's spent like any other tax. President Clinton raised the federal tax in 1993 by 30 per cent, to 18 cents per gallon. And there was no pretense of a trust fund; the funds went directly to the Treasury.

Politics aside, a strong case can be made for a rollback. Economists estimate that Clinton's tax will reduce GDP by about $15 billion this year, or roughly three times the amount of revenue raised. According to the Tax Foundation, 69,000 jobs will be lost nationwide. And the burden falls disproportionately on the poor. Fully three-quarters of workers earning less than $10,000 a year commute to work in privately owned autos. Indeed, Labor Department statistics show that the poorest fifth of Americans devote 8.8 per cent of their household budgets to gasoline and motor oil (compared to 3.1 per cent spent by the wealthiest fifth).

How to pay for a gas-tax cut? Representative Ed Royce (R., Calif.) would close down parts of the Department of Energy. His idea makes perfect sense. After all, DOE was created to break the economy's ''dangerous'' dependence on foreign oil. Proven oil reserves are 50 per cent higher today than they were when DOE experts were forecasting total depletion of our fossil fuels by the year 2000. Natural-gas reserves have increased fourfold, and coal reserves have doubled. The reserve situation outside the U.S. has improved even more dramatically, because of private exploration efforts. Yet DOE spends $5 to $6 billion each year to find new energy sources.

Gas-tax die-hards invariably point to our import dependence. Although more than 50 per cent of our crude oil comes from foreign sources, this is only a small fraction of our total energy use. The rest comes from domestic or Canadian sources -- natural gas, coal, hydropower. And domestic crude-oil production would rise dramatically if the ban on Alaskan oil exports were lifted. (Such deregulation would make the Alaskan North Slope one of the largest sources of recoverable reserves in the world.) The only energy shortage we've ever experienced occurred in the 1970s -- the result of price and allocation controls. That lesson needs to be recalled in the 1990s.

                        DECONSTRUCTING GAS PRICES
                             (1995 Dollars)