One Instance Where We Clearly Need Higher Taxes

Rodney Johnson

There’s a disease going around Washington, probably carried in the water served in the Capitol. It’s called “act like an idiot,” or maybe it’s “I think you’re an idiot.” Whether it’s because of their own shortcomings or their very low esteem for their constituents doesn’t really matter. Either way, the illness makes Congressmen do stupid things.

A case in point is the recent decision by the House of Representatives to sell oil from the Strategic Petroleum Reserve (SPR).

The government established this reserve following the 1973 Oil Crisis in which Middle Eastern countries cut off our oil supply. The goal was to give ourselves a cushion in the event of another supply shock.

By selling it, Congress is choosing to forgo a resource meant to ease the pain of an unexpected setback. That way, they don’t have to do the hard work of raising taxes. Hmmm.

The SPR holds about 720 million barrels of oil. It was declared completely full in December 2009 when oil cost $78 per barrel.

As part of the financing for the Highway Bill, Congress is considering selling 101 barrels of oil from the SPR, or about 15% of our reserves.

We’ve taken oil from our reserves on several occasions, including after Hurricane Katrina wrecked some of our energy infrastructure around New Orleans.

But that’s not the case today. We don’t have a major supply shock.

Quite the opposite, we have something of an oil glut, which has driven prices below $50 per barrel. We don’t have any interruption along the supply chain – no storms or pipeline issues. Instead, we simply need the money.

As I’ve noted in previous articles, the federal tax on gasoline is 18.4 cents per gallon, and the tax on diesel is 24.4 cents. These taxes are flat, not adjusted for inflation, and haven’t changed since 1993, even though the world around us has changed dramatically.

Our cars are much more fuel efficient, so we can drive more miles per gallon. At the same time, inflation has eaten away at the purchasing power of the buck. These two trends mean that we put more wear and tear on our roads and infrastructure, while paying less in taxes at the pump to keep everything in good repair.

It doesn’t work. We need more cash.

As you might expect, the Highway Trust Fund now runs a deficit every year, requiring a bailout from the general fund.

Congress has voted on short-term fixes in the past, but now they are contemplating a deal that will fund our roads for several years. The money comes from the current tax, plus weird things like selling oil from the SPR and requiring the IRS to use outside debt collectors (which should save $2.5 billion).

This is one instance when a clear case can be made for higher taxes.

The money I pay in gasoline tax isn’t enough to support the very infrastructure on which I drive. The roads and bridges that allow fresh produce and meat to reach my grocery store are in disrepair.

It makes sense to charge more for the transport of those goods through higher fuel taxes. And yet, our elected officials are so blinded by partisan politics that they can’t even agree on this!

Lest they be branded as tax-and-spend politicians, they have to pull funds from obscure corners of the government that have nothing to do with roads and bridges. The problem is that taxing and spending is their job.

We don’t send politicians to Washington to refrain from any spending at all. We send them with the directive to wisely consider each tax and every expenditure, making sure we get the most bang for our forcibly collected bucks.

Now, we’re left with a funding mechanism that’s not tied to the service provided.

What happens if more roads need repair, or more bridges need rebuilding? Do we fire the rest of the IRS and put the tax code on an honor system? Do we sell more of the SPR? How about auctioning off national parks or selling a Naval Destroyer?

Maintaining the link between services rendered and the cost of those services allows taxpayers to evaluate where their dollars go. Without the link, some services seem cheap while others cost much more than they are worth. When our politicians blur the lines, they do everyone a disservice, making future adjustments to funding sources more difficult and reformation of the tax code nearly impossible.

Rodney Johnson

Rodney

Follow me on Twitter @RJHSDent

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About Author

Rodney Johnson works closely with Harry Dent to study how people spend their money as they go through predictable stages of life, how that spending drives our economy and how you can use this information to invest successfully in any market. Rodney began his career in financial services on Wall Street in the 1980s with Thomson McKinnon and then Prudential Securities. He started working on projects with Harry in the mid-1990s. He’s a regular guest on several radio programs such as America’s Wealth Management, Savvy Investor Radio, and has been featured on CNBC, Fox News and Fox Business’s “America’s Nightly Scorecard, where he discusses economic trends ranging from the price of oil to the direction of the U.S. economy. He holds degrees from Georgetown University and Southern Methodist University.