What Does the Gas Tax Pay For

Taxes on things like cigarettes and alcohol are often referred to as
"sin taxes," but the justification for having them isn't necessarily
to punish users of these products as it is to have those users pay the
full cost of purchasing and using these products. In other words,
with consumption of cigarettes and alcohol come such things as early
deaths, second-hand smoking, and car crashes. These are costs to
society, and in economic terms, we would call them "negative
externalities."

The thing about negative externalities is that because everyone is
losing but no one is paying, absent outside intervention you'll tend
to have more of the bad stuff than you'd like. Just like with
positive externalities, like public education or a beautiful garden,
because everyone is gaining but someone has to pay, absent outside
intervention you'll tend to have less of the good stuff than you'd
like. Taxes on things like cigarettes and alcohol raise the price of
such goods so that less of them are consumed, meaning less negative
externalities for all us, just like public expenditures on education
and gardens allow all of us to enjoy the societal benefit.

But what about the gas tax? Is it to cover negative externalities
like pollution? Is it priced like the scarce resource it is? No, the
gas tax is in place to pay for the roads we use. It's only fair for
the users of the roads to pay for the roads, goes the reasoning, and
since we don't want to make every road a toll road or install
privacy-intruding chips on everyone's car, the next best way to
connect road use with us consumers is by charging us at the pump.
Fair enough.

But that's all the gas tax does. What it doesn't do is help get us to
the true price of gas. As a result, you have negative externalities:
more pollution. And more pollution means deteriorating air quality
and reduced visibilities and other bad things. Of course, a local
levy won't work, because people can easily drive to the next
jurisdiction that has lower rates. In places where states are bunched
together, a state levy is similarly ineffective.

So what about at the federal level? If we want to reduce our
dependency on oil from unstable sources, the solution should be a
portfolio of responses. Yes, let's find new sources domestically.
Yes, let's invest in the next generation of energies that will power
our transportation. But let's also curb our demand by raising the
price of gas. A national gas tax will appropriately price gas by
forcing us to pay for our share of the negative externalities every
time we go to the pump. Kyoto and other gatherings remind us that
energy conservation and air quality are global issues, so it makes
sense that America's solutions should happen at the national level.