The Gasoline Tax And The Renaissance Of The Bicycle

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With the rise of the US automobile industry, the bicycle almost disappeared as a means of transportation in America. It became a 19th Century relic like wooden teeth. The only person in the United States who rides regularly now is racing champion Lance Armstrong.

Emerging nations are also pushing aside the bicycle in favor of the car. In late 2003, the communist government banned the use of bikes on major roads in Shanghai, although satellite spy photos of the city show that this regulation is routinely ignored.

Bicycles were doomed by access to cheap fossil fuels.

Gas is cheap again now after topping $4 this summer, but Americans think it is a sucker’s bet to start driving again. According to MarketWatch, "Even though prices at the pump are now about 45% lower than they were a year ago and significantly below $2 a gallon, 52% of Americans told Gallup that they have not gone back to their old gas-guzzling ways." It’s better to use the money for mortgage payments, credit card debt, or a rainy day fund in case the head of the family gets fired.

For the time being OPEC has been castrated, and has lost its power to increase oil and gas prices in the face of a recession which is causing rapidly dropping global demand for crude. But, what the cartel cannot do, bureaucrats can.

Congress put together an advisory group called The National Commission on Surface Transportation Infrastructure Financing. The purpose of this Commission is to determine if there will be enough tax money to keep American public roads in good condition. It determined that the deficit between revenue and expense was about $107 billion last year. All government panels say that the numbers they are analyzing will go up in the future. It makes their jobs seem more important. But, it is not hard to imagine that the number of potholes in American roads will increase as the recession worsens and tax income drops at all levels of government.

The commission is going to recommend a gasoline tax increase to solve the problem. According to the AP, "In a report expected in late January, members of the infrastructure financing commission say they will urge Congress to raise the gas tax by 10 cents a gallon and the diesel fuel tax by 12 to 15 cents a gallon."

A family with two working parents uses about twenty-five gallons of gas a week. That household would pay $130 a year to help repair roads. If OPEC can ever cut supply enough to help offset budget deficits among its member nations and Russia,  the gas tax could be compounded as crude prices jump again.

The most important question on the minds of analysts of the federal budget is where does the money for the $700 billion TARP, and the Obama $700 billion bailout, and the Federal Reserve mortgage-backed securities purchase programs come from?   Why ask when everyone knows the answer?

As long as the Chinese government keeps buying American debt, the financing of the US deficit will be fine. If American sovereign debt loses its appeal and the demand for Treasuries dries up, one day the financial world could witness the unimaginable. The US could default on a part of its debt obligation.

Many economists assume that the deficit run up in 2008 and 2009 will be paid off during a new period of prosperity and rising tax income in the future. It is nifty logic but a fool’s justification for spending money the government does not have.

The National Commission on Surface Transportation Infrastructure Financing may be a grim crowd, but at least it would like to set up a system to pay for improvements in the transportation infrastructure today by raising the tax today. Whether Americans can afford it is another matter.

People don’t have to drive cars. Gallop says they are abandoning the practice. The bicycle is making a comeback.

Douglas A. McIntyre