Gas and Payroll Taxes

Raise one, lower the other

The Federal gasoline tax currently stands at 18.4 cents per gallon, and the diesel tax stands at 24.4 cents per gallon; these taxes have been set at this level since 1993 and collectively brought in $35 billion in fiscal year 2014.

Federal payroll taxes amount to 15.3% of wages for most workers (half of which is “paid” by the employer without worker visibility, and half of which shows up explicitly on a worker’s paystub), and brought in $1.02 trillion in fiscal year 2014.

So here’s a wacky idea for the incoming Trump administration: Triple the Federal fuel tax rates while knocking a percentage point off the payroll tax, specifically the part that shows up on paystubs. This would be approximately revenue neutral in the short term — about $70 billion more in gas taxes offsetting a $67 billion reduction in payroll taxes — with a lot of long-term upsides. At $2.15 per gallon, gas prices are lower than they’ve been in years, making this the least painful time to do it.  A few years ago, people would have killed to see gas prices as low as $2.50 per gallon. And of course, even after such a move, we’d still have the cheapest gas of any first-world country: Canada is a bit over $3 per gallon these days, and Great Britain is somewhere around $5.50 — all because of incredibly high taxes, of course.

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