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Trump endorses 25 cents/gal gasoline tax increase: sources

New York (Platts)--14 Feb 2018 550 pm EST/2250 GMT


US President Donald Trump endorsed increasing the gasoline tax by 25 cents/gal during a meeting with members of Congress Wednesday morning, according to sources familiar with the discussion.

The endorsement comes as White House and congressional Republicans are weighing the first increase in the federal gasoline tax in 25 years, a proposal that could dampen demand.

The increase in the tax, which has been 18.4 cents/gal since 1993, would offset some of the cost of Trump's $1.5 trillion infrastructure plan, which was unveiled Monday.

"The gas tax has its pros and cons, and that's why the president is leading a thoughtful discussion on the right way to solve our nation's infrastructure problems," a White House official said Wednesday in an emailed statement.

On Tuesday, Transportation Secretary Elaine Chao told reporters that an increase in the gasoline tax was "on the table," but noted that an increase in the tax was "not ideal," since it would be regressive, impacting low-income workers adversely. Ray LaHood, a transportation secretary during the Obama administr ation, has been pushing for a gas tax increase for years as a way to pay to repair crumbling highways. This week, Congressman Bill Shuster, a Pennsylvania Republican and chairman of the House Transportation Committee, indicated an increase may be the best option for funding the infrastructure bill.

"I'm open to any way to get real revenues," Shuster said in an interview Tuesday with Fox News.

US motor gasoline consumption is forecast to average 8.9 million b/d this month, up from 8.67 million b/d in January and just below the 8.99 million b/d average in February 2017, according to the US Energy Information Administration's Short-Term Energy Outlook.

EIA forecasts US motor gasoline consumption to average 9.33 million b/d in 2018 and 9.40 million b/d in 2019, peaking at 9.78 million b/d in August 2019.

What impact an increase in the federal gasoline tax may have on domestic demand is unclear, but higher taxes, combined with fuel efficiency increases, will likely cause a dip, according to Kevin Book, managing director with ClearView Energy Partners.

"Our models project falling gasoline demand due to incremental efficiency gains in the incumbent light-duty fleet," Book said. "Whether prices increase endogenously (as they have, with oil) or because of new taxation (which is also happening at a state level), US drivers' newfound price sensitivity suggests that higher pump prices could reduce gasoline demand even faster."

HOW HIGH?

In January, the US Chamber of Commerce called for a 25 cents/gal increase to the gasoline tax. The tax increase would be increased 5 cents/year over five years and raise $394 billion over 10 years, the Chamber estimates.

American Trucking Associations have called for a 20 cents/gal increase in the federal gas tax, which would generate $340 billion over a decade, according to Chris Spear, ATA's president and CEO.

Frank Macchiarola, downstream group director for the American Petroleum Institute, said that if Congress moves to raise the gasoline tax, it should also find a way to make drivers of electric vehicles contribute to the infrastructure fund.

"I think there should be some examination of the fact that the gasoline tax applies to drivers across the country," he said Tuesday at the Renewable Fuels Association's National Ethanol Conference in San Antonio. "The National Highway Trust Fund ... is not currently assessed to EV automobiles. That's certainly an area policy makers should take a look at as we assess how we're funding our infrastructure."

Mike McAdams, president of the Advanced Biofuels Association, said a higher gasoline tax would make biofuels more attractive and give a boost to the industry after the prolonged oil price slump created tough competition at the retail pump.

McAdams said it would also be a departure for this Congress to pass legislation that pays for itself.

"We spent quite a bit of money between the tax bill and the budget agreement, and we haven't raised the gasoline tax in quite some time," he said. "If there was all of a sudden an urge by Congress to try be fiscally concerned, a 50-cent gasoline tax ... might do a great deal for making us competitive with folks in the gasoline world, in terms of raising the overall price of fuel."

Tara Billingsley, a partner at Jim Massie & Partners and former senior staff member on the Senate Energy and Natural Resources Committee, said there's a joke in Congress about a lawmaker who "wasn't against raising the gasoline tax, he was just against voting to raise the gasoline tax." Book with ClearView said an increase in the federal gasoline tax was not "particularly viable, especially in an election year."

While the federal gasoline tax has not changed since 1993, 26 states and the District of Columbia have moved to increase state gas taxes, according to a July report from the National Conference of State Legislatures.

Currently, 18 states have set gas taxes at 32 cents/gal or higher, according to the NCSL. Pennsylvania has the highest tax at 58.2 cents/gal, while Alaska has the lowest at 12.25 cents/gal, according to the NCSL.

(This is an update of a story that ran on platts.com at 4:04 pm EST/2104 GMT)

-- Brian Scheid, brian.scheid@spglobal.com

-- Meghan Gordon, meghan.gordon@spglobal.com

-- Edited by Annie Siebert, newsdesk@spglobal.com




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