Iran Deal Won’t Help Gas-Tax Lovers

A new Iranian nuclear pact will enable Iran to flood world markets with millions of barrels of crude oil per day. That could put downward pressure on gas prices in the United States, but it won’t help lawmakers who want to raise the federal gas tax.

Iranian sanctions are slated to be lifted around the same time that Congress will be scraping the books for ways to pay for a multi-year transportation bill. Some lawmakers have proposed raising the federal gas tax, which hasn’t seen an increase in more than 20 years.

A favorite talking point among proponents of a gas tax increase is that lower gas prices make a federal per-gallon hike hardly noticeable. Pump prices are hovering around $2.30 per gallon, more than a dollar lower than this point last year. The Iran deal is all but secured once the Senate votes on it this week. (Democrats have already shown they can block Republicans’ attempt to derail the deal.)

And yet the viability of raising the decades-old tax on transportation fuel will remain a tough sell. “It’s unclear how much gas prices will drop,” said Rachel Pierson, an energy research analyst at Beacon Policy Advisors. “It’s hard to see such a huge change,” and it’s feasible that “nobody would notice,” she added.

Iran hasn’t been able to sell oil to the United States since 1995. The sanctions have sharply reduced the country’s exports, limiting its sales to mainly Asian markets.

Energy Information Administration Administrator Adam Sieminski told the Senate Energy and Natural Resources Committee in April that if sanctions were lifted on Iran, Iranian oil exports could depress world prices by as much as $15 a barrel next year.

However, Iran’s limited and aging infrastructure will make it difficult to ramp up its crude oil production overnight, meaning gas prices won’t be effected anytime soon. EIA projections now show that Iran won’t begin to meaningfully increase crude oil production until mid-2016.

Moreover, according to Pierson, “When you say ‘gas tax’ the public gets very concerned.”

The gas tax is a federal excise tax on retail sales of transportation fuel. It is 18.4 cents per gallon for gasoline, and 24.4 cents per gallon of diesel fuel. It was last increased in 1993.

Most of the revenue generated from the tax goes to highway funding, while the remainder is allocated towards earmarked federal programs.

But of late, the gas tax has not raised enough revenue to fund much-needed repairs and upgrades for the nation’s crumbling roads and bridges. The federal government spends about $50 billion per year on transportation, but the gas tax only brings in about $34 billion, according to the Congressional Budget Office. The result is that 24 percent of bridges are functionally obsolete or structurally deficient, and roads in need of repair are costing vehicle owners about $67 billion annually, according to data from the Department of Transportation.

DOT blames the state of disrepair on Congress. “Over the last six years, Congress has passed 33 short-term measures rather than funding transportation for the long term,” the agency said in a July statement. “And our transportation system — our roads and bridges, especially — is in a dire state of disrepair because of it.”

Sen. Tom Carper (D-Del.) has introduced legislation in the Senate to increase the federal gas tax by 20 cents per gallon. In the House, Republican Rep. Tom Rice (S.C.) has a bill to up the ante by 10 cents a gallon.

“All of the common sense in the world might suggest that Americans could handle a higher [gas] tax, and God knows there are many things that such a tax could go toward,” said Tom Kloza, the lead energy analyst at Oil Price Information Service.

“But many elections are determined by people who live paycheck to paycheck,” Kloza added. “And indeed those folks could argue that higher gasoline taxes are somewhat regressive, hurting some of the less fortunate.”

Even with the Iran deal secured, “Politically, that will not make it,” House Majority Leader Kevin McCarthy told the Wall Street Journal in June. House Speaker John Boehner (R–Ohio) and Senate Finance Committee Chair Orrin Hatch (R–Utah) have also indicated the gas tax is not politically feasible.

There is little enthusiasm among the public to raise the rate, either. A recent Morning Consult poll found that half of voters are opposed to raising the gas tax to fund transportation spending, compared to 36 percent who support that position.

The current highway spending bill expires Oct. 29. Lawmakers in both chambers are looking for ways to pass a six-year transportation spending bill, but the gas tax is likely still off limits.

Morning Consult