In January, Gov. Nikki Haley announced her willingness to see a modest increase in the gasoline tax if paired with a massive income tax cut. This is a notable reversal after adamantly campaigning against the gas tax in her re-election bid.
Setting aside the hypocrisy, I’m going to focus on the gas tax increase.
In theory, I agree with the governor. The majority of the state's voters agree with this plan in a poll released this week.
The gasoline tax in South Carolina is one of the lowest in the nation, despite the state highway fund projected to have more than a $40 billion shortfall by 2040. That gap will need to be paid somehow, and without an increase in the gas tax that would come from income taxes.
While not necessarily a bad system, the gas tax is much more efficient since the amount paid is theoretically proportional to the amount of damage done to the roads that need repaired. It also makes driving more expensive, and thus reduces it according to the basic laws of economics. Since driving comes with several externalities, an economic term for the effect an action has on bystanders, this is desirable. Less driving means less air pollution, and is thus a rudimentary step to curbing climate change.
Even if you’re a hardcore industrialist who doesn’t believe in helping nature, more driving means more lost time to traffic congestion and more lost lives in accidents. A higher price of gasoline would theoretically reduce those as well. As such, the gas tax is a socially desirable alternative to paying for roads from income tax money.
The only thing I really object to in the governor’s proposal is that it does not go nearly far enough to be effective. Even in terms of paying for roads, much less covering the cost of externalities, Haley’s proposed increase is predicted to collect $3 billion over the next decade, which is great until you consider the $40 billion shortfall. She further compounds the problem by requesting a cut to the income tax that would theoretically cover the gap at the same time.
Given that Haley spent much of her State of the State speech decrying the poor conditions of state infrastructure, it’s reasonable to assume that she wants to see it fixed. Why, then, would she make the repairs impossible to pay for? Without either an income tax increase or a much higher gas tax, her proposal is fiscally irresponsible and dangerous to our infrastructure’s future.
But how high should the tax be? It’s hard to get an exact number, but it’s almost certainly higher than it is in South Carolina. On average the U.S. has a much lower tax than all other developed countries and South Carolina has a gasoline tax rate well below the U.S. average. To put this in perspective, at least one economist has deemed Europe’s rates too low to cover the social costs of driving. With that said, speculating on a gas tax above a dollar a gallon in a red state is moving into fantasy.
The governor’s proposal is based on good ideas. Unfortunately, her refusal to take it far enough combined with the proposed income tax cut makes for a horrible policy.