Has cheap gas primed Congress for a tax hike?

Posted at 7:45 AM, Jan 06, 2015
and last updated 2015-01-06 07:45:42-05

WASHINGTON (CNN) — As prices at the pump sink to their lowest levels in years, some lawmakers hope Congress is primed to increase the politically sensitive U.S. gas tax for the first time in more than two decades.

The U.S. benchmark oil price slipped below $50 per barrel on Monday, its lowest mark in nearly four years, and drivers across the nation will pay less than $2.20 per gallon on average when they fuel up this week.

The plummeting prices have led transportation experts, business lobbyists and lawmakers to insist that the coming months — as they negotiate an extension of the federal infrastructure funding bill — are their best chance in years to increase the 18.4-cent per gallon gas tax that’s used to pay for highways and mass transit.

Sen. Bob Corker, R-Tennessee, is proposing a 12-cent gas tax hike, offset by other tax cuts, that he’s co-sponsored with Sen. Chris Murphy, D-Connecticut.

“It’s revenue neutral, but at least it would put our infrastructure on strong footing. And that second component seems to get left out of the conversation most of the time,” he said during an appearance on “Fox News Sunday.”

The Senate’s No. 3 Republican, John Thune of South Dakota, also signaled a willingness to advance Corker’s proposal on the program.

“I don’t think we take anything off the table at this point,” Thune said. “I think it’s important to recognize that we have a problem, an issue that we need a solution for, and we need to look at all the possible ways out there in which we can address the challenge and address the problem.”

Oil prices and politics have long been intertwined — from the 1979 crisis that helped sink Jimmy Carter’s presidency to the 2012 campaign pledge by Republican Newt Gingrich to lower gas prices to $2.50 per gallon.

Prices at the pump are often seen as a measure of the economy that’s much easier to understand than monthly jobs reports — and an important one, with wages in recent years failing to keep up with the increasing cost of living.

President Barack Obama has advocated funding transportation projects by instead closing other tax loopholes — but his spokesman didn’t close the door to a gas tax hike on Monday.

“We don’t believe the best way to fund modernizing our infrastructure is to raise the gas tax,” White House press secretary Josh Earnest told reporters. “But some people do and we’re willing to consider those proposals.”

The debate is just one bit of policy fallout of the dip in gas prices since September 2014.

Lower gas prices mean more money stays in American consumers’ pockets to spend on nights out to eat, the latest electronics and more — boosting those businesses and the overall economy. But falling gas prices also creates losers — and those losers will try to reverse their fortunes.

Here’s a look at how we got here, and what it could mean in 2015:

Why did oil prices drop?

Sky-high prices in the mid-2000s led energy companies to use every tactic at their disposal to find new resources in order to capitalize on the market.

Companies bought up land in states like North Dakota and Texas. They used new drilling technology and the hydraulic fracturing technique, or “fracking” — which means injecting high-pressure mix of water and chemicals into shale formations to fracture them, allowing shale oil to flow more freely. It was expensive, but worth the investment, since oil prices were high.

In 2014, production in the Middle East started to ramp up, as well. Meanwhile, with the global economy still sluggish, demand for oil dropped overseas. That left the market flooded and sent prices tumbling downward.

U.S. crude oil sold for about $50 a barrel on Monday — down more than 50% from its $107 price in June 2014.

That sounds like great news. What’s the catch?

There’s concern lower oil prices might hurt the United States’ push to end its reliance on foreign oil in the long run.

Producing shale oil in North America is more expensive than draining it from the vast oil fields of the Middle East. U.S. energy companies aren’t likely to shut down the operations that are already up and running — but they might stall or cancel plans for further drilling if they aren’t breaking even on their product. Whether that will happen, and to what extent, is still up for debate.

Worsening those concerns is OPEC — the Organization of the Petroleum Exporting Countries, a group that includes Saudi Arabia, Iran, Iraq, Kuwait, Venezuela and seven other countries — which coordinates on oil policies and plays a key role in determining global prices.

Rather than slowing down its production, OPEC has let the supply of oil continue to flood into the market in hopes that companies drilling in the United States might eventually decide it’s no longer worth it.

There’s also a domestic impact. Industries like airlines and automotives might benefit from lower gas prices. But the economies of states that have seen shale production could take hits, as could energy companies, many operating out of Houston.

What do politicians want to do about it?

Nothing immediately — but it could affect their longer-term plans.

Obama has sought to combat climate change by increasing fuel economy standards, requiring manufacturers to raise the average mileage per gallon of their entire fleet to 54.5 miles by 2025 or else pay a penalty. But that plan could be undermined if buyers, less concerned about high gas prices, choose less fuel efficient options, such as trucks and SUVs.

There’s also the connection to gas taxes, which Congress could consider raising while prices are so low.

Why raise gas taxes — or tax gas at all?

The federal government has to pay for roads, highways and mass transit somehow — so it requires users to pay for those items by taxing gasoline purchases.

Congress set the gas tax at a flat 18.4 cents per gallon in 1993 — and it hasn’t budged since then, which means that U.S. transportation funding has effectively declined as inflation ticks upward each year.

Right now, the gas tax is bringing in about $34 billion per year. But transportation experts insist the United States’ Highway Trust Fund needs much more to pay for badly needed bridge and highway repairs and new projects.

Now that gas prices have dropped to their lowest levels in years, imposing such a tax hike might be less politically painful for Congress. And the timing could be right: The law replenishing the highway fund expires in May.

So what’s the hold-up?

The issue doesn’t break down along traditional Republican-and-Democratic lines. The U.S. Chamber of Commerce, for example, is one of the strongest advocates for a gas tax hike, though it traditionally is anti-tax.

Many politicians who support the idea of pumping more money into transportation funding don’t necessarily have a problem with the gas tax. They each just think there are better ways to go about it — and they rarely agree on which way is the best.

For conservatives, though, the issue remains a bit of a third rail. Long before his unrelated fall tied to ethics issues, former Virginia Gov. Bob McDonnell was excoriated by the right for accepting a transportation funding package that included a gas tax hike in his state — and his hopes for a presidential bid suffered as a result.