From Carter To Trump: The Changing Politics Of The Gas Tax

Resonating Today

Carter’s defeat may seem like ancient history, and most members of Congress have probably never heard of it. But it echoes through Washington even today. Indeed, it’s the missing prehistory of today’s debate over a gas tax holiday.

Earlier this month, President Trump told reporters that he’s planning to suspend the 18.4-cent federal levy. Trump can’t actually do that on his own, of course, but he has a good track record when it comes to bending Congress to his will.

In fact, many lawmakers are already on board. “President Trump has proposed to suspend the federal gas tax and he’s exactly right,” said Sen. Josh Hawley, R-Mo., on May 11 while introducing a bill to ice the tax for 90 days. “American workers and families deserve immediate relief and this legislation will do just that.”

The idea has Democratic fans as well. Sens. Mark Kelly, D-Ariz., and Richard Blumenthal, D-Conn., introduced a bill in March that would suspend the federal tax until October; Rep. Chris Pappas, D-N.H., has introduced a similar measure in the House.

It’s easy to see what’s driving the latest push to suspend the gas tax. Gasoline prices are visible, immediate, and politically unforgiving. There hasn’t been much polling on current tax holiday proposals, but the surrounding politics are plain enough. In late March, the Pew Research Center found that gas prices were top of mind for Americans in both parties; 79 percent of Democrats and 59 percent of Republicans reported being “extremely” or “very” concerned about fuel prices in the wake of the Iran war. A tax holiday speaks directly to that anxiety, promising visible relief.

Important caveat: Only part of the savings from a gas tax holiday is likely to show up in the form of lower pump prices. “Consumers would see roughly 60 to 72 percent of the tax savings at the pump,” according to the Penn Wharton Budget Model, “with the remainder captured by suppliers.”

Gas tax holidays are not a new idea. They’ve been proposed numerous times over the past quarter century, popping up reliably in the wake of oil price spikes. Some states have implemented holidays for their own gas levies, but Congress has never pulled the trigger.

Still, a gas tax suspension remains a go-to solution for vote-maximizing politicians eager to please their constituents. Many politicians are only too happy to propose a sweeping (if generally temporary) tax cut.

An Older Tradition

But gas tax politics didn’t always follow this pattern. In the 1970s, presidents and their advisers seriously considered using gasoline taxes and related price instruments to make fuel more expensive, not less. Sometimes those proposals have been framed in terms of infrastructure needs, since the Highway Trust Fund is chronically short of cash. But gas tax hikes have also been defended in the name of energy security. Carter’s push for an oil import fee was one example. So was his earlier proposal for a refundable gas tax. We’ll take a closer look at both ideas in a bit.

But first, we need to look back even further in time; Carter wasn’t the first president to ponder a gas tax hike. In a great article exploring the gas tax history of the 1970s and 1980s, economist Christopher R. Knittel described President Nixon’s flirtation with higher energy levies.

In the summer of 1973, with gasoline shortages popping up around the country, Nixon’s economic team considered a tax hike of up to 10 cents a gallon, Knittel pointed out. By mid-November, the administration was even pondering a 40-cent-per-gallon levy, with the proceeds eventually refunded to consumers. Making the tax refundable would ameliorate distributional concerns while still helping curb demand.

Nixon never acted on these proposals. Neither did President Ford, who personally torpedoed the idea of raising the gas tax, ignoring the advice of several senior advisers (including Treasury Secretary William Simon, Interior Secretary Rogers C. B. Morton, and Alan Greenspan at the Council of Economic Advisers).

Morton was especially outspoken, Knittel wrote, touting the gas tax even after Ford had nixed the idea. In November 1974, after Morton appeared on national television to defend a tax increase, the president voiced his frustration. “I thought that others in the executive branch got the word, and I hope this word is conveyed to my good friend, the secretary of the interior,” Ford said. “We are not considering an increase in the gasoline tax.”

For supporters like Morton, the argument for higher gas taxes was compelling: Prices change behavior, and if the problem was excess consumption, then making purchases more expensive was an obvious solution.

But politicians understood the danger of using price signals to discourage consumption. After all, voters generally hated the idea. “Consumers seemed to have been the biggest opponents of gasoline taxes,” Knittel wrote in his 2014 article. “Polling at the time suggested that the public supported gas taxes only under certain, and unrealistic, circumstances.”

More specifically, Knittel cited a Harris Survey from November 1974 that found that voters opposed a 20-cent increase in the gas tax by 88 percent to 7 percent; a 10-cent increase was only slightly less toxic, with 74 percent against and 13 percent in favor. Support improved when voters were asked about a refundable 10-cent levy, but the idea remained underwater, with 56 percent opposed and 35 percent in favor. A promise that the tax would free the United States from dependence on foreign oil did somewhat better: 47 percent opposed and 39 percent in favor. When coupled with a refund, opposition declined even further, falling to 38 percent; support crept into positive territory at 51 percent.

Other polls pointed in the same general direction, suggesting that voters were deeply reluctant to accept any sort of increase in the gas tax. But that didn’t stop Carter from giving the idea a try. In April 1977 the new president proposed a standby gasoline tax as part of his broader energy plan. (Prior analysis: Tax Notes, June 12, 2006, p. 1281.) The new levy would only take effect when national consumption exceeded a specified target. It would start at 5 cents per gallon, rising gradually to 50 cents in lockstep with rising consumption. The tax would be refundable, with revenue returned to consumers as an income tax credit.

Carter’s tax was basically a threat, although he preferred to call it something more palatable. “If the American people respond to this challenge, we can meet these targets, and under these circumstances, this gasoline tax will never have to be imposed,” the president told Congress. “I know and you know that it can be done.”

Congress was unconvinced. Lawmakers understood that the politics of a gas tax ultimately turned on a simple fact that made rebates ineffective: Drivers would see the tax before they got the rebate.

Voters were skeptical, too. “A CBS/New York Times survey, taken days after Carter’s energy plan was proposed, found that consumers opposed higher gasoline prices by a 62 to 32 margin,” Knittel noted. “The survey also found that blue-collar families were less likely to favor gas taxes than white-collar families.”

Members of Congress understood those politics only too well. A gasoline tax was visible and regressive. A refund might address the distributional problem, at least eventually, but it did nothing about visibility. Perhaps more important, a new gas tax would land on purchases that many Americans did not consider discretionary; for commuters, farmers, and people living in rural areas, gasoline was not a luxury good or an environmental abstraction. It was an unavoidable cost of daily living.

Labor organizations made that point bluntly, driving home the regressivity of the proposed tax. “We must not hit hardest those with the lowest incomes,” said one labor leader quoted by Knittel. “High gasoline taxes would be a regressive tax on the poor.”

Congress was listening. The House Ways and Means Committee killed Carter’s standby tax on June 9, 1977, voting it down 27-10. For good measure, the panel also rejected a 3-cent gas tax hike dedicated to public transportation, voting it down 25-11.

Import Fee

Those votes might have ended any further discussion of high gas taxes. But Carter renewed the debate in 1980 after the Iranian revolution returned energy policy to the national spotlight. This time, Carter chose an import fee as his instrument of demand control, using presidential authority rather than ordinary tax legislation to make it happen. The fee promised to raise oil costs upstream; the increase would eventually work its way into retail gasoline prices.

Congress was unswayed by the change in taxing instruments. Whether it was called a gas tax, an import fee, or an energy security measure, the new policy would make fuel more expensive. As Congress moved to block the tariff, Sen. Dale Bumpers, D-Ark., offered a scathing indictment, insisting that the proposal would deliver “harsh and cruel treatment to the 85 percent of the people of the country who can hardly keep body and soul together.” By any measure, Bumpers warned, the import fee was intolerable. “It’s an elitist policy that says, ‘the rich will ride and the poor will walk,’” he declared.

What’s Changed

In some respects, the politics of gas taxation haven’t shifted much since the 1970s. Voters still dislike gas taxes, just as they did 50 years ago.

What has changed is the willingness of political leaders — and especially presidents — to resist the popular distaste for raising gas prices in the name of energy security. In the 1970s, higher gas taxes were politically dangerous but still taken seriously in key policy circles. They were debated in Cabinet meetings, in congressional committees, and in major newspapers. They sat on the menu of possible responses to energy scarcity alongside rationing, price controls, efficiency standards, speed limits, import fees, and vehicle taxes.

“Discussions at the time suggest that meaningful changes in gasoline taxes as a way to reduce consumption were on the table,” Knittel wrote in summarizing the energy politics of the 1970s. “The public discussion seemed to be much greater than it is today.”

If that was true when Knittel was writing in 2014, it’s even more obvious now. Congress has not raised the federal gasoline tax in more than three decades. Modern proposals for the tax almost always run in the opposite direction, focusing on suspensions, holidays, rebates, and relief. The tax has become a one-way instrument; lawmakers may not be able to eliminate it or even suspend it. But almost no one ever suggests raising it.

Carter’s defeat helps explain this new reality. Generally speaking, tax cuts of every kind have dominated Washington for decades. But the gas tax has remained especially unpopular. Only its centrality to infrastructure funding has protected it from past attempts to repeal or reduce it.

Carter’s twin defeats in 1977 and in 1980 did not create the politics of gas tax holidays. But they played an important role in shifting political debate. Once policymakers stopped believing they could use higher fuel prices to discipline consumption, the gas tax was destined to wither on the vine — done in slowly by inflation and vulnerable to suggestions that it should be suspended or repealed entirely.