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Proposed Federal Gasoline Tax: The US Government`s Dilemma

Proposed Federal Gasoline Tax: The US Government`s Dilemma
Case Code: ECON093
Case Length: 13 Pages
Period: 2017-20
Pub Date: 2020
Teaching Note: Available
Price: Rs.400
Organization : -
Industry :-
Countries : United States
Themes: Taxation/ Pricing
Proposed Federal Gasoline Tax: The US Government`s Dilemma
Abstract Case Intro Excerpts

Abstract

The case discusses the US President Donald John Trump’s proposal to raise the federal gas tax, which had not been increased for 25 years (1993-2018). Despite the increasing transportation infrastructure needs and the growing number of vehicles on the road over the years, the federal gas tax in the country had remained stagnant since 1993. The federal inaction had forced many American states to raise their own gasoline taxes between 1993 and 2018 to fund highway maintenance and improvements. At the end of 2017, the US President pitched the idea of increasing the gas tax by 25 cents per gallon to the country’s law makers. Trump said the money coming out of raising the gas and diesel tax would be invested to improve roads, highways, and bridges in the country. In February 2018, the US President proposed the idea to the US Congress of an increase in tax to pay for infrastructure. Earlier, the Trump administration had given the assurance it would provide US$200 billion in federal funding for infrastructure development, for which transportation advocates were in search of a more sustainable revenue source.

The new gas tax proposal spurred contentious debate over the future of US transportation funding. Some Republican and Democratic Party leaders supported Trump’s tax raising proposal, considering it essential to fund the nation’s infrastructure development. American business and trade associations, including the US Chamber of Commerce, the American Society of Civil Engineers, and the American Trucking Association, supported Trump’s gas tax hike plan. However, some Republican lawmakers raised concerns over the proposal, saying it would harm poor Americans. The opponents of gas tax were doubtful whether the new gas tax would be helpful in funding America’s infrastructure as it would prompt consumers to shift to energy efficient vehicles and electric vehicles, reducing the demand for gasoline consumption. They suggested considering a tax on vehicle miles travel, also known as vehicle-miles-traveled (VMT) tax, as an alternative to the gas tax. It remained to be seen whether the government would be able to implement this new tax, or find another way to fund the development and maintenance of highways.

Issues

The case is structured to achieve the following teaching objectives:

  • Understand the importance of gas tax as a revenue source for infrastructure projects.
  • Analyze the factors that determine the gas price.
  • Examine the impact of a gas tax hike on infrastructure development.
  • Understand the alternative measures to gas tax hike.

Contents

Keywords

US economy,Energy demand,Gasoline consumption,Transportation infrastructure,Infrastructure development,Infrastructure spending,Price of gasoline, Inflation, Consumer cost, Demand and supply of gas, Equilibrium price,Gas tax, Tax revenue, Federal and state fuel tax

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