The sharp drop in oil and gas prices since last summer suddenly seems like a revenue-raising opportunity to officials in several states and even in Washington. Since consumers are saving so much money, the reasoning goes, they might barely notice if gas taxes went up, providing more money for roads and other transportation projects.
At least a dozen states are considering raising gasoline taxes, including some with anti-tax Republican governors, such as Iowa, New Jersey, North Carolina, South Carolina, Tennessee and Utah. In Washington, a few Republicans and many Democrats favor raising the federal gas tax to replenish the Highway Trust Fund, which runs out of money every year and gets topped off with cash from other Treasury accounts.
If there was ever a good time to raise taxes on motor fuel, now seems to be it. The last time gas prices were this low was in early 2009, at the height of the Great Recession. Washington was cutting taxes and ramping up spending instead of the other way around, to stimulate the economy. Now, by contrast, job creation is strong, workers are starting to earn more and falling gas prices are themselves a kind of stimulus program putting more money in consumers' pockets.
But politicans better hurry if they want to slip a gas tax past blissed-out drivers. The euphoria over the money consumers are saving at the pump conveys the impression that gas prices have dropped to record lows. Not even close, and a modest rise in gas prices could remind drivers that gas isn't all that cheap after all.
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When adjusted for inflation, today’s average gas price of about $2.25 per gallon is roughly the same as it was in 2006. In early 2002, pump prices were the equivalent of $1.50 today. And from 1986 to 2006, real gas prices were consistently lower than they are now, as this chart comparing real, inflation-adjusted gas prices with nominal prices shows:
Gas prices are a weirdly important economic factor because they have an outsized impact on consumer psychology. Gas prices close to $4 a gallon bum people out and discourage other types of spending, even if the economy is strong. Low gas prices cheer people up, even if the economy’s weak. And sharp swings in prices can affect consumer sentiment more than the actual level of prices, which seems to be what has happened lately. The pump price has fallen by about 40% since last summer, giving consumers a bit more spending money. Consumer confidence has surged since then and is finally back to prerecession levels.