Gas price slump makes strange bedfellows in tax hike debate


Gas prices are plunging across the country, a product of surging U.S. energy production that has put the country in the same company as Saudi Arabia and Russia.

However, in a strange twist of fate, that same dynamic is bringing to the fore a topic once thought to be anathema, especially in a Republican-dominated Congress: higher gas taxes.

The drop in fuel prices has occurred for a record 102 consecutive days, according to the AAA, putting more than $14 billion of disposable income in consumers' pockets. However, the federal gas tax has been lodged at 18.4 cents for more than two decades, which helps fund what some estimates project could be more than $1 trillion in infrastructure spending needs in the coming years.

The idea of boosting the current rate has become Washington's latest political football, as proponents argue that consumers can absorb the hike, and that the money is needed to fund improvements to roads, bridges and tunnels. Although still in the theoretical stages, the talk was apparently serious enough for House Speaker John Boehner to flatly rule out a tax hike just this week.

So what's changed?

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"Congressional leadership is hearing from local delegations, governors in particular," about the need for more federal funds to lift infrastructure, said Paul Afonso, the energy, utilities and environmental group practice leader at Brown Rudnick in Boston.

In recent days, the Republican governors of Massachusetts and Iowa have both moved to bolster infrastructure funding, and may be eyeing even more cash infusions.

"There's a critical need and pressure that congressional delegations are getting from office holders [at the state level] to have this money come back to them," said Afonso, a former Massachusetts utilities regulator. "That's where some of the pressure and advocacy is coming from."

Boehner's coolness to the idea of a higher gas tax hasn't stopped a growing number of other GOP caucus members from adding support to an idea that has long enjoyed wide Democratic backing. In the last week alone, at least three high-ranking Senate Republicans have publicly flirted with the possibility.

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API: We won't rule out a gas tax bump

As far as strange political bedfellows go, the senators are far from alone. In a conference call with reporters this week, the American Petroleum Institute, the oil and gas industry organization that normally embraces market-based energy policies, said it was neutral on the idea of hiking gas taxes.

API president Jack Gerard told reporters that the lobbying group "never opposed" a gas tax hike, but argued that there was a broader need to look at infrastructure beyond just funding road and bridge projects.

Although the organization has not taken a position on the gas tax—which leaves open the prospect that it could back a rate hike under certain circumstances—Gerard argued that policymakers should do a better job helping to facilitate the flow of private capital into infrastructure projects that support the U.S. energy boom.

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"We do believe we should look at infrastructure beyond the historic ways of viewing it for bridges and roads and say to ourselves, what about pipelines?" Gerard asked. "What about rail build-out? What about that other infrastructure necessary to make our market more efficient as an energy producer, an energy superpower?"

Surging oil and gas production, combined with popular support for energy pipelines—polls show broad public backing for the long-stalled Keystone XL project, a bill for which passed the House on Friday in the face of a veto threat from the White House—could add to the impetus for a gas tax hike, especially if traditional foes of higher taxes are warming to the idea.

Investment vehicles have raised billions, but North America's energy infrastructure is projected to need nearly $300 billion worth of new pipelines over the next 20 years, according to a 2014 study by the Interstate Natural Gas Association of America. Still, some question whether the public could get behind using public money to fund a sector flush with private capital.

"One can demonstrate the value of defining infrastructure as gas pipelines," said Afonso. However, "it's not what most consumers and voters are used to. Adding the complexity of pipelines will make it that more difficult to pass more legislation."

Clarification: An earlier version of this story inferred that Gerard was calling for public funding of energy infrastructure projects. The latest version drops that suggestion.