This is One Tax We Need to Raise
by David Fessler, Energy and Infrastructure Expert
Thursday, June 24, 2010: Issue #1288
It’s a good thing I’m not running for government office… because I’m about to propose higher taxes.
But hear me out before you vote “no” to my article below.
I’m not talking about taxation in general. Like every other American, I’m not in favor of higher taxes. But the type of taxes that I am in favor of are on specific things that…
- we think are undesirable/harmful.
- people use heavily.
For example…
~ Federal & State Tobacco Taxes: I’m not a smoker, but there’s fairly sound medical data that says smoking is detrimental to your well-being.
Cigarette taxes vary by state. For instance, if you smoke in Missouri, you pay its government just $0.17 per pack in taxes. But Rhode Island smokers pay a hefty $3.46 per pack.
The nationwide average tax for all states is $1.18. Add in the $1.01 the feds charge smokers to inhale and you’re talking some serious money.
~ Alcohol: Many people enjoy beer, a decent glass of wine, or single-malt from time to time. But the feds and states tax you every time you do.
However, there’s a tax on something that we use frequently… but one that hasn’t caught up with the times…
This Road Fund is Running on Empty
With governments scrambling for dollars and unemployment hovering near 10%, new sources of revenue are hard to come by.
So it’s more than a little surprising that the federal gasoline tax is still where it was back in 1993: 18.4 cents a gallon.
And it’s this tax that helps pay for the building and repairing of roads in the United States. Revenue from the tax is deposited into the highway trust fund.
However, the fund took a huge dive when the recession hit. And the domino effect of the downturn hit the fund, too. Americans started driving less, as many people got laid off from their jobs and/or were generally more strapped for cash.
As a result, current revenue from the federal gasoline tax is much too small to cover existing projects, let alone new ones. In fact, the only way the fund hasn’t gone bankrupt is thanks to annual cash infusions from the government’s general fund.
In 2010, of the nearly $40 billion earmarked for spending from the highway trust fund, 50% of it will come from general fund transfers and 50% of it from the federal gasoline tax.
And with Congress and the President reluctant to raise the gasoline tax, the funding deficit is destined to continue.
And that’s a problem, given the significant cost to build and repair roads and bridges…
You Use It… You Pay for It
The cost to build an interstate varies depending on a number of factors. Most fall between $1 million to $2 million per mile, but Boston is home to the most expensive road in U.S. history, at over $1 billion per mile.
The problem with forking out such huge amounts of money isn’t so much the cost itself… but who’s footing the bill.
Everyone is paying to build and fix the roads… even if they don’t use them.
However, there’s a simple solution to the problem: tolls.
Road tolls aren’t a revolutionary idea. They’re implemented all over the United States. Many major roads and bridges already have tolls – and most of the money collected is used to maintain them.
In my home state, for example, we have the Pennsylvania Turnpike. People who drive on it pay for its maintenance via tolls – and it’s a relatively well-maintained road.
But last year, when the state attempted to pass legislation that would put tolls on Interstate 80 – a major east-west route through Pennsylvania – the Federal Highway Administration shot it down.
It cited a rule, dictating that revenue from tolls can only be used to maintain that particular road. And Pennsylvania was going to use it for maintenance funds on some of its other roads – roads that I can personally say are some of the worst in the country.
So should we increase the federal gasoline tax to help pay for new roads and improvements to existing ones? Well, it would serve two purposes…
- It would close the widening budget gap in the federal highway trust fund.
- It would make gasoline more costly. However, given that the average person won’t change their routine unless a cheaper alternative appears, installing tolls on roads and bridges that don’t have them would also generate essential revenue for state coffers. And people who don’t drive wouldn’t pay.
Investing in Private Infrastructure
A number of states have thrown in the towel and sold off or leased portions of roads, airports and bridges to private companies. In doing so, they receive much needed revenue and get rid of the maintenance.
There are also a number of public companies that own and invest in infrastructure…
- Macquarie Infrastructure Company (NYSE: MIC)
The firm owns, operates and invests in various infrastructure businesses in the United States and is one of the larger firms in the business.
Its energy-related division includes bulk liquid storage terminals and gas production and distribution. It also owns the largest cooling system in the United States, Thermal Chicago, which provides water to over 100 buildings to keep them cool during the summertime.
- Macquarie Global Infrastructure Total Return Fund Inc. (NYSE: MGU)
This is a broader way to invest in the infrastructure sector. The firm’s infrastructure investments include pipelines, toll roads, electric utilities, airports, water, seaports and electric transmission lines.
So if you wish to gain direct exposure to the infrastructure sector, consider adding a few shares of either of the Macquaries to your portfolio.
Good investing,
David Fessler
Investment U… Extra Innings: Remember when President Obama was campaigning for the presidency and he talked about all the money he was going to spend on improving the U.S. infrastructure?
After 18 months in office, his promises are ringing a little hollow. His stimulus program originally earmarked $30 billion for roads and bridges and $8 billion for high-speed rail. But talk is cheap.
First of all, a high-speed rail network linking major metropolitan areas would cost way more than what he’s set aside. It’s moot anyway, since a national rail plan doesn’t even exist at this point.
Not only that, America’s new infrastructure bank has had its $60 billion budget hacked down to a mere $4 billion.
And more importantly, we’ve seen no new legislation to replace the transport funding law, which expired at the end of 2009. All the White House is doing is prodding Congress to extend it until the end of this year.
- The American Recovery Project: A Strong Economy Starts With Strong Infrastructure
- Stalled Infrastructure Projects: What it Means for Investors
- Taxes Are Going Up… Here’s Three Ways to Play the Coming Tax Increase
32 Responses to “This is One Tax We Need to Raise”
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David Fessler is an Advisory Panelist for Investment U and The Oxford Club, one of the world’s most exclusive and prestigious networks of private investors.
June 24th, 2010 at 11:33 am
Personally I don’t agree with you at all. What was everyone doing during the “good” years? Of course I mean the gov’t. What is anyone doing about the corruption in the gov’t agencies? I live in the NYC area and roads are always being redone. Does it help? NO. Has anyone ever watch any crew actually work? Roads don’t last too long. Pot holes are always there and fixed with a patch. Bottom line……….NO MORE TAXES until they show they are spending it the right way.
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June 24th, 2010 at 11:45 am
BIP seems like a better choice for infrastucture investment. Higher dividend, ownwership related to BAM, more diversified, etc.
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June 24th, 2010 at 11:52 am
I totally agree with usage taxes except for things that are required for life itself, such as food, etc. I totally agree with taxing tobacco, alcohol, gasoline with a floating COLA based on inflation, tolls on major highways and bridges to support their maintenance and feeder roads, etc. Tolls and gas in Europe are much higher. Might be interesting to look at how they use their tolls money and with what restrictions — or none. Go for it! Good luck.
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June 24th, 2010 at 12:02 pm
I would agree… if the money collected was specifically dedicated to the purpose for which it was collected.
You know… the “Lock Box” concept. (How good that works!)
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June 24th, 2010 at 12:07 pm
I disagree. No tax needs to be raised. lets get back to the basics of life and turn things over to private enterprise. What we need is less federal employees. Less labor unions drawing big wages for execs. Companies need to make money without having the Big Government telling them what to do. The Government does NOT know how to run a profitable business, or venture. Do away with half the Goverment agencies like the FDA, EPA. ETC. There failing the People.
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June 24th, 2010 at 12:17 pm
Although I agree that we need support for the infrastructure of our country; I think that we should be sure that tax dollars intended for that are indeed spent on that. Too many politicians regard tax dollars as free money to spend on whatever they want.
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June 24th, 2010 at 12:21 pm
Raising taxes on fuel is a noble thought IF,the proceeds are used for infrastructure use, but like all other tax receipts it will go into the general fund and get spent for all their pet projects by our defunct politicians!
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June 24th, 2010 at 1:39 pm
Sorry fella but you’re totally wrong. If they tax more they will spend more plain and simple. The proof is everywhere.
Eric
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June 24th, 2010 at 1:43 pm
The Federal Highway Trust Fund would also be helped if we stopped spending large sums of money out of the fund for things such as purchasing Civil War Battlefield sites
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June 24th, 2010 at 1:59 pm
Raise another tax are you kidding me?
All the taxes the government now collects to do things it has no business doing (welfare, paying for someone else’s health care, support of illegal aliens like in hospital emergency rooms and schools, government schools themselves, prison . . . you name it), money which should be used only for arguably legit govt functions such as road maintenance (many libertarians would disagree even with this) . . . and you want to raise another tax?
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June 24th, 2010 at 2:01 pm
This is an incorrect philosophy. To use taxes as deterrent is not what this country is about. We the people were to be free from governmental controls. They were to teach liberty and protect the weak. Not take from those that will do and give to those that don’t want to do for themselves.
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June 24th, 2010 at 2:18 pm
Very little of the funding for highway infrastructure should go through the federal government. Just as they should not be in the business of taking care of individuals (through medicare, medicade, ADC, social security, and a multitude of other “entitlement” programs)they also should not be in the business of telling states how they can collect and spend money for state projects. Gasoline taxes are a reasonably good method for raising money for road projects in that the taxes correlate fairly well to usage so they are similar to tolls in that respect while being more convenient on both the payment and collection side. I have concerns over ensuring that funds collected for the purpose of maintaining and improving roadways actually end up going toward that purpose. I have even greater concerns over using tax based incentives to modify behavior. I believe this practice is always fundamentally wrong. Regardless of how good the justification for it can be made to sound, allowing it for any reason automatically opens the door for misuse and abuse. Individual freedom is a much too fundamental principal to allow it to be infringed upon based on some supposed good intentions. Good intentions often (nearly always when government is involved) go wrong, and the stated good intentions are virtually never the actual reason anyway. The price of freedom is eternal vigilance. Never trust government. It takes constant presure from freedom loving citizens to keep governments in line.
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Russell Cervenka Reply:
June 27th, 2010 at 5:20 pm
There are already taxes in place to pay for the roads. The freedom of unhindered travel, which we are supposed to have in These United States, would disappear with the implementation of universal toll roads. Once in place, the government vampires could raise tolls to prohibitive levels. Also, you can bet that even though the wealthy elites could much more easily pay the tolls than the working poor, those elites would have their puppets in government dream-up all types of exemptions from the tolls, just for them. Toll roads are a bad, anti-freedom, anti-American step toward people control. Just bring U.S. troops back home from the more than one hundred countries they now occupy, and place a small portion of them on OUR OWN borders!! This would save trillions of dollars,greatly improve foreign relations, and keep OUR OWN country safe from the drug wars, gang warlords, and the many other dangers trying to seep through our borders.
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June 24th, 2010 at 2:27 pm
Naturally I disagree as the Fed. govt is incapable of managing any revenue.
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June 24th, 2010 at 2:37 pm
Why not get behind the “FAIRTAX”. You buy something new you pay the tax. Keep 100% of paycheck. This makes taxpayers out of everyone above the poverty level, even illegals, drug dealer, prostitutes, politicians,etc.Once in place eliminate the IRS, YEA
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June 24th, 2010 at 2:47 pm
We do not need more inflation on the common American. I’d rather see a huge tax on Washington idiots as well as the media. To begin with the taxes established with Eisenhower’s national road system was adequate, until the political parasites decided to steal from the fund. Also the fund subsidizes mass transit. It was never intended for that. Tax the users of mass transit if you believe in a semblance of fairness. We are not Europe and have no desire to emulate same.
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June 24th, 2010 at 2:54 pm
If the Federal government used the taxes where intended and did not rob the funds for general spending and pork barrel projects, most of the funds would be adequate for the intended purpose.
A value added tax to replace many of the present taxes sounds like a good idea but it would never stop at what looks like a present reasonable level, with present congressional thinking it would be easier to keep on raising the rate than the present policy of just printing more money.
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June 24th, 2010 at 3:46 pm
I would rather suffer bad roads with pot holes and be forced to buy shock absorbers and ball joints for my rigs than pay for higher taxes! When will all of this nonsense and rationalizations for higher taxes end? Chances are that higher taxes won’t go to the roads anyway. We are already up to our behinds in debt. How about balancing the budget by cutting government and put an end to the Green rip off.
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June 24th, 2010 at 5:32 pm
I agree that the tax on gasoline needs to be raised. The additional funding will help pay for road upkeep, but more importantly this is how some of Europe’s countries have increased funding and have paid for the advancement of renewable energy. These same countries have moved beyond what we have done here. We hear the TV hosts continue to say that we are the “best” at everything, but we have fallen behind in progressing beyond last century’s energy sources, among other things. We can’t just continue to do the same thing and expect different results.
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June 24th, 2010 at 6:48 pm
Absolutely wrong! The flaw in the logic is that tolls target the working class and businesses, and that will always hurt the economy.
Think! The office workers commuting by bus will be affected not at all. But the working class, particularly those that must drive for a living, the tradesmen, deliverymen, will all take the hit. You think plumbers are expensive now? And what about florists, bakers, the pizza guy?
HOV lanes are wrong for the same reason. Anything that impedes the flow of commerce impedes the economy.
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June 24th, 2010 at 8:27 pm
There is no such thing as people not using the roads. Do you go to the grocery Store? How do you think the groceries got there? How about the airport? Do you bring your kids to school? I’d like to have everyone that uses welfare,and only those who use it, pay for that. Why don’t you write about that?
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June 24th, 2010 at 9:51 pm
Maybe it is time for a national rail system. It would certainly decrease our dependance on fossil fuel by having fewer cars on the road. As for taxing things that “are harmful to us” – that usually leads to people finding other avenues to get what they want to avoid paying the tax. If our government had responsible spending policy there were be no need for more taxes. In my mind the bottom line is we need total reform, the kind that would alter our comfy life style for an uncomfortable period of time, and I don’t think any of our political leaders have the courage to do that because they probably wouldn’t be re-elected so we continue to look for a “fix” that takes the path of least resistance.
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June 24th, 2010 at 9:55 pm
People are not working. Where are they going to get the money? I think lawyers, politicians, any form of government rep. should be taxed for miss handling tax payer money. Who owns the Pa turnpike, not the state of Pa!!
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June 24th, 2010 at 10:11 pm
The U.S. is broke financially. We don’t need more stimulus, a national rail system or anything like that. Something needs to be done. The only thing I might be for in taxes is more toll roads, tobacco and alcohol.
Someone at Investment U could check this out. There are a lot of congressmen who are millionaires. I do not object to that. A large portion of their income came from taxpayers money. Also, they give themselves a raise every few years. Something should be done about this. The BIG QUESTION IS what can be done to make this change?
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June 25th, 2010 at 10:25 am
Wow! It looks like you got beat on by a lot of people before me, so I won’t go in to a lot of detail about your feelings on the gasoline tax. If you look at the total state/fed gas tax, I think most of us feel we pay plenty. So, until a cheaper, more plentiful source of energy for transportation is established, let’s not tax everybody to death who drives their personal vehicle. I think our country will get greener when sufficient replacement products become commonplace.
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June 25th, 2010 at 10:30 am
Silly–of course those who don’t use the roads WOULD pay for their upkeep. The trucks that bring their food to the supermarkets and goods of all kinds to retail stores would just pass their increased costs on to the retailer which would then pass it on the the non-driving consumer. And increasing the gas tax would cut down on driving, but that means hotels and motels would lose business and lay off chambermaids and waitresses serving resort areas would make less in tips. Beware the Law of Unintended Consequences
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June 26th, 2010 at 5:58 pm
Get outta here! Lower receipts from less driving means less road maintenance. If you really want to improve the system, how about we repeal the law that effectively mandates union labor on federal projects? Bet you would get lots more competition and TWICE as much done for the same dollar. That should take care of the maintenance. The truth is that our population is starting to level off and not much new construction is needed once you eliminate the political payoffs. Toll roads end up being a big rip-off. The Florida Turnpike was paid off years ago and now is a political slush fund.
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June 26th, 2010 at 9:01 pm
1. I agree to raise sin taxes on alcohol, cigarettes, etc. as long as I get to choose what things are “sins”. If I cannot choose, then give me veto power. If someone doesn’t stop this nonsense, we’ll be paying taxes on our “needs and pleasures” to quote Jefferson.
2. The highway fund was robbed just like the Social Security fund. When it came time to tap it, all that was there were IOUs. THEN, they said taxes had to be raised to fix the roads.
Wake up America. You’re being bamboozled, lied to, and played for a bunch of fools.
3. You want to give these crooks and liars MORE money, be my guest, but leave me out of it. Maybe they will build more “big digs”.
tony
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June 26th, 2010 at 10:37 pm
Interesting comments. I have a few suggestions. To wit, I smoke and drink, but do not complain about the taxes levied thereon.
As to roads, turn all roads into toll roads, along with a flat but stable gas tax. Hence, those who use, pay, with the base tax going for general infrastructure improvements nationwide.
As to earmarks in Congress, grant each state a per capita minimal grant to be directed by these crooked politicians as they see fit, BUT NO MORE/NO LESS than the per capita amount. Sen. Dodd, no more subsidy for an Indian casino IN YOUR STATE. If you want to subsidize such activities, pledge your income.
Finally, like California, hold periodic internet based referendums, and move to a unicameral Congress. Assuming every man’s vote is critical, representation by state is inane. Majority votes, majority rules.
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June 27th, 2010 at 6:27 am
For the past several years, instead of balancing the budget or trying to find ways to cut the bloat, NY State has raised taxes, fees and the cost of licenses. What’s amazing is they always announce these moves like it’s new found money, “free for the taking”. Fact is, they are all taxes and a burden on people.
Anyone ever consider that people who aren’t fortunate enough to have children, still have to pay school taxes for other children to go to skill? How bout the fact that people who live within their means ultimately pay the bills for all those who do not? Every time someone declares bankruptcy and runs away from the debt they owe, everyone else has to pay in increased prices for goods and services?
We used to have one superintendant for the district and two principals for each of the schools in the district. Today, we have far less students, and a superintendant for each school, and multiple deputy, and associate principles for each school. Everyone makes $100,000 to $150,000 per year, and gets a payraise every year. Meanwhile I work in private sector, non-union manufacturing, and haven’t had a payraise in 4 years. I make $25,000 per year, after 30 years of nose to the grindstone. Private sector jobs are what brings wealth into the country. Government jobs, while necessary, consume wealth.
Let’s stop talking about more taxes, and start holding our governmen’t feet to the fire to live and act responsibly.
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June 27th, 2010 at 8:03 am
The best thing that can be done besides confiscations ( taxes ) is to eliminate the prevailing wage law and allow non-union contractors and their employees the opportunity to bid on Federal Highway projects without harrassment by Union GOONS!!
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July 1st, 2010 at 8:36 pm
Instead of raising the gas tax get rid of it all together and put the highways, roads, streets, etc in the general budget. There is not a
person in this country that does not benefit from our roads, etc., from before they are born until the final trip to the cemetery. Tax codes need to be simplified not loaded with more taxes.
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