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Support of Resolution Opposing Fuel Tax Increase to Reduce Deficit (H.R. 41)

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American Government

Support of Resolution Opposing Fuel Tax Increase to Reduce Deficit (H.R. 41)

Congressman William O. Lipinski
Congressional Record: 101st Congress
Extensions of Remarks
February 6, 1989

HON. WILLIAM O. LIPINSKI in the House of Representatives

Mr. LIPINSKI. Mr. Speaker, for the past 32 years, the revenues generated by the Federal motor fuel excise tax have been earmarked exclusively for the maintenance and improvement of our Nation's transportation infrastructure. This was not true when the fuel tax was first levied, and it reflects the progress that we have made toward an understanding of its consequences. In addition to directing resources to our Nation's transportation needs, the `user-fee' concept that has evolved responds to the inequities that result when the fuel tax is employed for more general purposes. A fuel tax increase targeted to reduce the deficit would repeat our past mistakes, requiring the poor, as well as residents of rural areas, to shoulder a disproportionate share of the deficit reduction burden.

The need for strong measures to address the budget deficit is indisputable. Our enormous revenue shortfall forces the Government to compete for the funds required by private industry to finance the growth of our economy, driving up its cost. A significant reduction of the deficit would allow interest rates to fall, thereby stimulating new investment in plant and equipment. By retarding capital investment, our huge deficit stifles improvements in the living standards of millions of Americans.

These benefits notwithstanding, economists warn of the harm that would result from the measure proposed. These experts are largely in agreement that the more substantial the increase in the motor fuel excise tax, the more severe the economic contraction that would follow. The best available estimates suggest that an increase of 25 cents per gallon would, in the first year of the levy, drain $30 billion from the economy and transfer it to the Government. This sum represents approximately 1 percent of the Nation's disposable personal income. Increased production costs would reduce profits in numerous industries, ultimately causing further loss of jobs and income. Investment in plant and equipment would also suffer, with negative implications for the future. In addition, higher gasoline prices would cause inflation to accelerate. Unless the resulting inflation was accommodated by the Federal Reserve, thus fueling further inflation, the result would be further economic contraction and additional decline in our Nation's living standards. Recognizing the severity of these consequences, the 97th Congress rejected a similar proposal in the face of sudden and alarming deficit growth that occurred in 1982.

Of perhaps even greater significance are the implication of the proposed tax increase for our Nation's already deteriorating transportation infrastructure. All States and many localities currently rely upon gasoline taxes, with most of the revenues generated earmarked for transportation-related expenses. Throughout this decade, increasingly cramped budgets have forced widespread reductions in the outlays by State and local governments for maintenance and improvement of these essential facilities. By discouraging the purchase of gasoline, a large increase in the motor fuel excise tax would substantially reduce the revenues available to States and localities for this purpose. While the deficit is indeed a dire concern, we cannot allow it to blind us to the deterioration of our Nations roads and mass transit systems. Indeed, the pressing need for repairs and improvements to our Nation's transportation infrastructure provides the sole justification for a modest increase in the motor fuel excise tax. The performance of needed repairs and improvements would stimulate economic growth, and would likely, have a favorable effect upon the budget deficit over the long term.

Economists further warn that the initial increase in revenues that a substantial increase in the motor fuel excise tax would generate would dissipate rapidly as consumers adjust their spending habits to include smaller gasoline budgets. By reducing our Nation's income, the measure proposed would at the same time cause lasting damage to our obligations in the future. These circumstances demand that we reject this potentially counterproductive `quick fix' in favor of a deficit reduction measure that maximizes the long-term well-being of our Nation's citizens.]

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