Shakespeare’s Juliet mused about whether “that which we call a rose, by any other name would smell as sweet.”
For Republicans today, the question is whether that which we call a tax by any other name would be as unacceptable. This is an issue in my home state of Minnesota, where we are falling farther and farther behind in maintaining and improving our road system. Some members of our legislature are trying to get a 6-cent-per-gallon “debt service surcharge” added to the state tax on motor fuels.
That this issue has even arisen is a sad commentary on the state of politics in our country and our state. A once-great party that long rightly could claim the mantle of economic prudence has reduced its guiding philosophy to one rule: never raise any tax at any time. This defies logic and would get little support from economists anywhere on the scales from conservative to liberal, either within their discipline or in terms of party politics.
The upshot of this dogma is that our economy would be less productive and less efficient in transforming resources into the goods and services necessary to meet people’s needs and wants.
The GOP is not alone in its fixation on a demagogic and incorrect rule. For every Republican who says of Democrats: “They are going to raise your taxes,” some Democrat says: “They’re going to take away your Social Security or cut your Medicare,” of Republicans. Both slogans have proved popular with voters. Tragically, both have had the same effect, to give the baby boom cohort of voters a higher level of consumption than is optimal for our society and guaranteeing that our grandchildren will have a lower standard of living than they could have if we were more responsible.
All economists agree that there are certain economic goods and services that are necessary for an economy to be optimally productive, but that never will be produced in a free-market economy without government action. This is because the benefits of these goods and services spill over to society as a whole. Since no private individual or company can capture all the benefits, they don’t have incentives to produce these products.
This basic principle is not controversial within economics. If an economy does not produce enough of such public goods, which include public safety, transportation and education, it will not be as productive as it could be. Period.
Any arguments then become about the scope of such goods. Having roads and airports so people and goods can move is accepted as essential. But what about a high-speed-rail link between Los Angeles and San Francisco? Or a Minneapolis commuter train line for that matter?
Educating people and providing basic public health is assumed to be essential. But how much education should be free? Through eighth grade? High school? A four-year degree? And what about early childhood education?
Vaccinations and a safe water supply? Of course! But should we have Medicare for all, or let everyone buy their own health services and insurance in private markets? Should we have private, nonprofit hospitals and colleges? Or should all be government-owned and operated?
All are nuanced arguments about paying for and providing public goods. And such debates about the scope of public goods are appropriate and useful.
So going back to the issue of fuel taxes and what they pay for, the debate is really ended on some basics. Given current technology, we need a system of highways and bridges so that trucks and cars can move people and things around. That was not as true 150 years ago before we had practical vehicles with internal combustion engines. And it may not be true 50 years from now if we are all zipping around in solar- or atomic-fusion-powered robotic speeders that anticipate and adjust for high-traffic periods and locations. But right now we need an adequate net of transportation infrastructure in good shape.
We don’t have this. So people and trucks sit in traffic jams. Springs and steering alignments get ruined by potholes. Truckers make detours just to avoid bad stretches of pavement. Highway engineers have to impose road construction restrictions more often than necessary for the same stretch of road because they don’t have the budget to do it right.
There are many ways one could fund roads and bridges. A tax on motor fuels is the one that all states have found practicable for decades.
Here in my state, we started with one in 1925 that, adjusted for inflation to 2019 dollars, was about 29 cents per gallon of gasoline. The actual one today is 28.5 cents. This is higher than North Dakota’s 23 cents, but below South Dakota’s 30 cents and Iowa’s 30.5 cents.
After 1925, as more people got cars and the benefits of “all-weather roads” became evident, GOP- and Democratic-majority Legislatures alike raised Minnesota’s tax so that in 1940 it stood at 73 cents in 2019 dollars. Just in the last 50 years, it has fallen from 49 cents to 28.5 cents in real terms.
The Republican credo is that taxes just keep going up and up. And they do in absolute terms. But they do not necessarily do so relative to income or to total value of output. All taxes collected by the state of Minnesota, including those paid by businesses, have fluctuated in a band around 8% of total personal income for more than 40 years. In 1979, that percentage was 8.3. In 2018 it was 8.5%. In the depths of the recession in 2010, it was only 7.6%.
For North Dakota, excluding the oil boom years of 2012-2015, the average is about 7%. It was 0.1% in 1980, 8.8% in 2017 and 5.1% in 2018. Neither state is on a path of accelerating growth of state taxes. They are remarkably constant relative to income.
The position of some members of the GOP against any tax increase at any time is frustrating. We had a different era in Minnesota from the 1940s through 1960s, when Republican governors exercised determined leadership in reshaping Minnesota’s government institutions and policies for a stronger economy and a more just society. This included expansion of spending on higher education and on roads and the beginning of a shift of funding K-12 education with money from the state income tax rather than only property taxes.
This coincided with the presidency of Dwight Eisenhower, a Republican who committed our nation to spending on roads and bridges at a level never seen before or since. Ike was a fiscal conservative, but not as fixated on restricting federal spending as his predecessor, Democrat Harry Truman. Eisenhower saw a need for much better interstate highways and was willing to raise taxes to fund it. We are all better off for his leadership.
We have not had any substantial increase in the state gas tax since 2008. It has been frozen at 28.5 cents since 2013. Our governor made a political mistake by calling for a phased 20 cent-per-gallon increase right out of the gate. That didn’t fly. Now a group of legislators is trying to get a 6 cent increase “debt service surcharge.”
At one level this is nonsensical. It is an increase in the gas TAX. But there is a practical level at which the other label matters. Our capacity to issue bonds to build new roads and bridges is limited by the amount of revenue generated by the gas tax that can be used to service those bonds. We are up against a wall in that we have borrowed as much via bonding as we can service with the existing tax. So we cannot just borrow more money the way we do at the federal level.
A generation ago, Republicans and Democrats were better able to work together to resolve problems, in the Upper Midwest states and at the national level, even when that meant some increases in taxes. What my state is looking at now involves no increase in inflation-adjusted terms over where we set a tax a decade ago. But whether this will pass remains iffy.