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Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Why GM Wants You to Pay More Taxes at the Pump

Dan Akerson spent the entire summer explaining himself.

Back in early June, the CEO of GM (NYSE: GM) suggested that the United States should hike gasoline taxes by $1 a gallon. 

Predictably, conservatives and liberals alike were infuriated by the suggestion. 

For conservatives, such a large tax hike would be seen as just another government grab for workers' hard-earned dollars. Liberals felt that sharply increased gasoline taxes would hit the poor the hardest, not only because it would take a larger bite of their already limited discretionary income, but also because the poor are the ones least likely to be driving late model fuel-efficient cars.

So what was GM's CEO thinking?

[InvestingAnswers Feature: The 20 Most Affordable Fuel-Efficient Cars on the Market]

Higher Gas Tax, a Stronger Nation?

The timing of Akerson's move was questionable. But he's simply reinforcing what many economists, political leaders and environmentalists have already thought. Higher gas taxes and more pain at the pump will compel us to drive more fuel-efficient vehicles, producing several likely benefits:

  • Reduced oil imports would help reverse our stubborn trade deficits with major global oil producers. That would boot our nation's financial health back into shape by slowing the rising tide of debt that we owe foreign nations.
  • Buying less crude oil abroad means less money goes to hostile Middle Eastern regimes, limiting a key source of their earnings that are often spent on de-stabilizing actions in the region. 
  • And the reduction in demand may also move oil prices well below current levels, in effect robbing OPEC producers of both volume and top prices. 

Beyond the notion of trade, there are a couple of other key reasons to give serious thought to Akerson's suggestion.

The first involves our nation's highways, bridges and transit systems. We provide money to maintain them through federal gas taxes, but the tax rate hasn't been raised a penny from its current 18.4 cents/per gallon since 1993. 

Simply put, federal gas tax revenues have been static over the last 18 years and haven't kept up with the rising cost of maintaining our national transportation infrastructure. An increased gasoline tax would provide a fresh stream of revenue to fix and maintain the crumbling roads and bridges plaguing the nation.

In addition, higher gas taxes and pump prices would encourage consumers to drive less and become more fuel-conscious; as people would take fewer spontaneous car trips and lump their errands together or even seek to take mass transit when convenient.

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Does GM Have an Ulterior Motive?

Akerson made his suggestion in early June, and more specifically said that a $1 hike in the gasoline tax would be better for consumers than looming mandates for much higher fuel economy standards that the Obama administration had been proposing at the time.  

It's also not hard to see why Akerson, as head of GM, would have wanted overall higher fuel prices -- which would boost compact and small car sales as they have already with its Chevy Cruze -- rather than a fuel economy mandate that would require an expensive overhaul of his company's manufacturing and design operations. 

Despite Akerson's efforts, the Obama administration followed through with the mandate the following month, requiring automakers to increase fleet-wide fuel economy standards to 54.5 miles per gallon by 2025. That figure is calculated on a sales-weighted basis so very efficient small cars that are above the mandated figure offset larger vehicles that don't meet the threshold. 

Akerson was likely at least pleased that rumors of a 62.5 MPG standard never came to pass. 

Is a Gas Tax Hike Still on the Table for the New Federal Budget?

Going after fuel economy standards proved to be far easier than raising the specter of higher gas taxes. President Obama likely knows the backlash such a move would create. 

#-ad_banner_2-#But GM's Akerson, who is not a politician and is thus more capable of pitching unpopular proposals, was on the right track by calling for higher gasoline taxes. 

As noted above, the U.S. taxes gasoline at 18.4 cents a gallon and states typically add another 20 to 30 cents on top of that for a total gas tax bite of less than $0.50.

Think a $1 hike in the federal gas tax -- leading the whole tax bill to be around $1.50 per gallon -- would cripple us? Germany, France and the U.K. already take more than $4 for each gallon in taxes, so we'd still be at less than half of their level of taxation.

Right now, a hand-picked committee of legislators is drafting solutions to flesh out the recently-agreed upon spending cuts that avoided a government shutdown. Yet many believe the next step after that process is complete will be to look at the tax code. Might the time for a higher gas tax be addressed at that time?

The Investing Answer: While a hike in the federal gas tax may seem a hard pill to swallow for many, it may be a reasonable way to raise the revenue we desperately need for our infrastructure, strengthen the nation's energy independence and keep the hostile oil producers of the world humbled.

Could we do all this without raising income taxes or spending more money that we don't have? Yes, and it's a move the super committee in Congress should definitely consider.