Highways and the Federal Gas Tax

Another day, another news article supportive of raising the federal gas tax. This time it’s the Wall Street Journal. The article notes that there is strong public opposition to raising gas taxes, but then proceeds to give us the arguments in favor of it, but none against. So for the next reporter writing about raising the gas tax, here are some policy reasons against it.

Let me zero in on two points made by the Journal story.

First, it says, “elected officials from both parties are treading into the debate cautiously, framing the issue around improving highway safety and local economies by repairing a growing backlog of troubled roads and bridges.”

I don’t think that’s true about a “growing backlog.” In fact, our highways and bridges appear to be improving, not getting more “troubled.” Federal Highway Administration (FHWA) data show that of the nation’s 600,000 bridges, the share that is “structurally deficient” has fallen from 22 percent in 1992 to 10 percent in 2013. The share that is “functionally obsolete” has also fallen.

Meanwhile, the surface quality of the interstate highways has steadily improved. A study by Federal Reserve economists examining FHWA data found that “since the mid-1990s, our nation’s interstate highways have become indisputably smoother and less deteriorated.” And they concluded that the Interstate system is “in good shape relative to its past condition.”

The Journal says, “The federal levy … has stood at 18.4 cents a gallon since the first year of the Clinton administration, despite multiple proposals over the years to raise it. Over the past decade, Congress has approved higher spending for highway construction but hasn’t raised the tax to pay for it, creating periodic funding crises.”

It’s true that Congress has not raised the gas tax recently, but that’s because the American people have been consistently against it in polls. The problem is that Congress has gone ahead and jacked up spending anyway. So we don’t have a “funding” crisis, but a “spending” crisis.

Gas tax supporters say that it is time to raise the tax because it has not been raised in two decades. What they leave out of the story is that the gas tax rate more than quadrupled between 1982 and 1994 from 4 cents per gallon to 18.4 cents, as shown in the chart below the jump. Thus, looking at the whole period since 1982, federal gas tax revenues have risen at a robust annual average rate of 6.1 percent (based on Tax Foundation data). So, again, we have a spending crisis, not a funding crisis.

Public Schooling’s Pluralism Problem and the School Choice Solution

Last month, the Orthodox Union, a prominent Jewish organization, launched a campaign advocating for private school choice policies. That raised hackles from Americans United for Separation of Church and State (AU), which condemned the chutzpah of the Orthodox Union to work for equal funding for children in their community:

“It [the campaign] will require us to stop being timid,” [Orthodox Union executive vice president Allen Fagin] said. “We pay our taxes, and our kids are also entitled not to be left behind.”

That statement, of course, is only half-true: Fagin’s constituents do pay their taxes, and their children are indeed entitled to an education. But that’s exactly what public schools are for. OU’s campaign relies on the same faulty logic we’ve seen from advocates of voucher programs: Because parents pay taxes, they should be able to ask every other taxpayer in the state to subsidize their child’s religious education. It’s a clear constitutional violation. […]

It’s unconscionable (and exceptionally brazen) for OU to demand that further funds be siphoned away from public schools intended to serve entire communities in order to promote their private religious agenda. If Orthodox parents want to place their children in religious schools, that’s their right. And it’s their responsibility to pay for it.

In reality though, it’s the idea that so-called “public” schools are actually “public” that is only half-true. District schools are technically open to any student whose parents can afford to live in the district, but they are certainly not “intended to serve entire communities.” For example, they are not intended to serve Orthodox Jews or others like them who have a different vision of education. When everyone is forced to pay for one school system and decisions about education are made via a political process, there will be winners and losers.

You Ought to Have A Look: Carbon Tax, Carbon Tax, Carbon Tax

You Ought to Have a Look is a feature from the Center for the Study of Science posted by Patrick J. Michaels and Paul C. (“Chip”) Knappenberger. While this section will feature all of the areas of interest that we are emphasizing, the prominence of the climate issue is driving a tremendous amount of web traffic. Here we post a few of the best in recent days, along with our color commentary.

As you may have guessed from the title of this post, this week we call attention to a few articles around the web examining the common sense behind a tax on carbon. It turns out there is none.

From time to time, there is a pitch made to conservatives that a “revenue neutral” carbon tax would be a win-win for everyone. It would help mitigate climate change while at the same time spur economic activity. Even if you don’t care about the former, you’re bound to like the latter. Or vice versa.

To try to win some new carbon tax recruits in the incoming Republican-led Congress, two recent high profile articles—one in the Washington Post by one-time Obama economic adviser Larry Summer and the other on National Review Online by the Hudson Institute’s Irwin Stelzer—make that argument, with embellishments.

If a carbon tax sounds too good to be true, then your intuition is correct.

Robert Murphy, an economist for the Institute for Energy Research, provides the technical details, collected from the economic literature, as to why the economic gains don’t actually come along with a carbon tax as they are being promised. In his National Review Online article “Taxing Carbon Won’t Help the Economy,” Murphy rebuts many of Stelzer’s claims. Ultimately, he delivers this sage advice:

Highlights from Overlawyered—2014

At my Cato blog Overlawyered I’ve been pulling together month-by-month highlights of stories from last year. I’m currently up to October in the series. Here’s a small sampling of my favorites: 

Read the whole series here.

Final Hurdle to Keystone XL Pipeline Decision Lifted

Today, the Nebraska Supreme Court overturned a lower court ruling and held that the power to approve a route for the Keystone XL pipeline through the state lay with the governor. Nebraska Gov. Dave Heineman had previously approved the pipeline’s route, but his authority was challenged by a group of landowners (pipeline opponents) who claimed the authoritative power was held by the state’s Public Service Commission rather than the governor.

President Obama repeatedly referred to this pending decision as the reason why he could not made a final decision on whether to approve or deny the pipeline. As recently as earlier this week, when indicating the president would veto a measure to approve the pipeline that is currently making its way through Congress, Obama press secretary Josh Earnest referred to a  “well-established process in place” for making such decisions. The Nebraska case was the last remaining part of that process, as the State Department has already given the pipeline a clean bill of environmental health.

As for the president himself, in delivering his Climate Action Plan back in the summer of 2013, he said:

I do want to be clear: Allowing the Keystone pipeline to be built requires a finding that doing so would be in our nation’s interest. And our national interest will be served only if this project does not significantly exacerbate the problem of carbon pollution. The net effects of the pipeline’s impact on our climate will be absolutely critical to determining whether this project is allowed to go forward. It’s relevant.

Odd that he should say that in June of 2013 when a month earlier, in May of 2013, I testified before Congress as to that climate math of the Keystone XL pipeline and found its effect on our climate was inconsequential, resulting in less than 1/100th of a degree of warming by the end of this century. Case closed.

Before the Nebraska decision, Congress was preparing to send legislation to the president’s desk that would wrest the decision from the State Department. But now that the Nebraska court decision has been handed down, Obama can steal the thunder for himself and simply grant approval to the pipeline.

And, who knows, with today’s oil economics, perhaps the pipeline will not be built, and the president can have his cake and eat it too.

FHA: On Mortgage Insurance and Adverse Selection

According to a White House release, the Federal Housing Administration (FHA), which insures lenders’ against borrower default, will be lowering its annual premiums. While I believe this to be a reckless move in the wrong direction, I am the first to say that setting the appropriate premium is a lot harder than it looks.

The fundamental problem facing any insurer, like the FHA, is that the risk profile of borrowers is influenced by the premium rates they are charged. Obviously a rate that is set too low will not cover losses and the insurance fund will lose money. But a rate set too high will drive away low-risk borrowers and leave the insurer covering only high risk borrowers (and likely also losing money). An insurance fund can easily find itself in a position where it needs to raise rates to cover losses from risky borrowers, but each rate increase only drives out the good borrowers, making the risk composition of the pool ever worse. If you want to see this spelled out with a lot of fancy math, I refer you to Joe Stiglitz and Andrew Weiss’s classic paper on the topic (which builds upon earlier work by Dwight Jaffee).

Figure 3 from Stiglitz and Weiss (below the jump) illustrates this tension. If you want to attract both low- and high-risk borrowers, you need to have a much lower rate than if you only want to attract high-risk borrowers. In fact, one of the rationales I often hear from advocates of expanding the FHA is that doing so will improve the health of the fund by attracting better quality borrowers.

The problem with this is that President Obama is quite explicit that his desire is to lower the credit quality of FHA borrowers. From the White House fact sheet: “FHA premium reduction will help hundreds of thousands of additional families own a home for the first time.” This initiative is targeted at first-time buyers, those who have not been able to get a loan previously. First-time buyers who have been previously “waiting on the sidelines” are likely to be younger and hence have lower credit scores on average, or else be older buyers who have had trouble finding credit because they are high-risk.

Such is also borne out in the FHA’s most recent origination report, which shows average FICO scores (a measure of creditworthiness) declining over recent years. Almost 60 percent of recent FHA borrowers have FICOs below 680. Almost 75 percent made a down-payment of less than 5 percent. If they would need to sell their homes within a few years of purchase, then given the transactions costs they’d need to bring cash to the table. This is not a high-quality book of business. 

As I wrote almost three years ago, if the FHA is serious about rebuilding its financial health and protecting the taxpayer, it needs to move in the direction of reducing its lending to higher-risk borrowers. If the agency is unwilling to do so, which appears to be the case, then any change in premiums should be up not down.

Community College Courtesy of the Federal Taxpayer? No Thanks

Word came out last night that in a speech in Tennessee today President Obama will propose that two years of community college be made free to all “responsible” students, primarily funded by federal taxpayers. But one look at either community college outcomes or labor market outlooks reveals this to be educational folly.

The fact of the matter, according to the federal government’s own data, is that community college completion rates are atrocious. The federal Digest of Education Statistics reports that a mere 19.5 percent of first-time, full-time community college students complete their programs within 150 percent of the time they are supposed to take. So less than 20 percent finish a two-year degree within three years, or a 10-month certificate program within 15 months. And that rate has been dropping almost every year since the cohort of students that started in 2000, which saw 23.6 percent complete. Moreover, as I itemize in a post at SeeThruEDU.com, even when you add transfers to four-year schools, the numbers don’t improve very much. Meanwhile, interestingly, the for-profit sector that has been so heavily demonized by the administration has an almost 63 percent completion rate at two-year institutions, and that has been rising steadily since the 2000 cohort.

The other huge problem is that the large majority of job categories expected to grow the most in the coming years do not require postsecondary training. Of the 30 occupations that the U.S. Department of Labor projects to see the greatest total growth by 2022, only 10 typically need some sort of postsecondary education, and several of those require less than an associate’s degree. Most of the new jobs will require a high school diploma or less.

Of course, one of the biggest problems in higher ed is that for so much of it, someone other than the student is paying the bill, tamping down students’ incentives to seriously consider whether they should go to college and what they should study if they do. This proposal would only exacerbate that problem, essentially encouraging people to spend two years in community college fully on the taxpayer dime while they dabble in things they may or may not want to do—and as they maintain a pretty low 2.5 GPA—then maybe focusing a little more when the two years is up and they have to pay something themselves.

Unfortunately, there is no way to look at this proposal (at least as it has been spelled out so far), investigate the reality of community college, and conclude anything other than it is a terrible idea.