Obama's Infrastructure Plan is Great; Here is How to Pay for it

Obama's got a plan, but he won't say were to pay for it. Here is an idea. I know its controversial.

Word slipped out yesteday that Obama's got a $175 billion stimulus plan to revitilize the US economy.  Much like the public works projects of the Great Depression, Obama wants to dedicate most of the money to building better new transportation infrastructure with significant funds also to be allocated to alternative energy sources.  It is a great idea and could put people to work and get the US focused on necessary transportation solutions for the future (high speed rail, etc.). Unfortunately, he doesn't know where the $175 billion is going to come from.

Just as Europe has moved ahead of the US in transportation, we need to look at funding this new transportation initiative the way that they do.  It won't be popular, but the only answer is to raise taxes - to tax existing inefficient use of transportation to pay for our plans for the future.  It isn't going to be popular politically today, but forcing the US to swallow a bitter pill will make Obama the hero of future generations.

Here's how I propose that it works.  The obvious first target is a Federal gasoline tax.  Even with gas at $4 a gallon, Americans were consuming 180 billion gallons of gas a year.  Each penny of a Federal gasoline tax would generate $1.8 billion a year.   A dollar tax would generate $180 billion, paying for this program entirely, without bringing gas prices near where they were 4 months ago.  Two dollars would generate $360 billion, paying for this program and much of TARP, and, if gas remains at $55/barrel for two years, will not set gas prices too far above where they were just recently.

Additionally, I would note that each penny charged to Americans to drive on highways would yield over $33 billion per year.  I don't like this as much because it doesn't promote efficiency the way that a federal gas tax does.

Although not palpable with GM and Ford on the verge of bankruptcy, a 1% tax on new automobiles would generate over $8 billion per year in tax revenue.

I know that this is all controversial.  I know that Obama would be perceived to be stabbing his constituency in the back (he isn't taxing the wealthy with this, but he is taxing the poor who depend on driving and driving inefficieny cars - often because they cannot afford efficient ones).  But, it is the right thing to do.  Europe has a lot of problems and shouldn't ordinarily be a role model for the US.  But, these aren't normal times.  And, as we move towards an efficient transportant infrastructure that they have, we need to pay for it through taxing of our old inefficient transportation vehicles and habits.

Ari Socolow
Ari Socolow: Ari Socolow is the Chief Economist and Editor-in-Chief at BestCashCow. He is particularly interested in issues relating to financial literacy and bank transparency. Since co-founding this website in 2005, Ari has been frequently cited in the media as an expert on local and national savings accounts, CD products, mortgage and loan products and credit card rewards products.

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Comments

  • ktexas

    November 24, 2008

    I think a gas tax would be a very responsible way to help pay for all the government spending. Perhaps it could be done to keep prices at around $3/gallon. When oil goes down like it has recently, the tax would go up. When it spikes like during the summer, it would go down.

  • Sam Cass

    November 24, 2008

    Hi Jonathon,
    I think your proposal makes a lot of sense. I think if framed the right way American's would go along with it. Obama certainly has the political capital at this point.

    I would like to see money spend on the construction of nuclear plants. My personal belief is that nuclear is the future. Wind, solar, etc should also be pursued but to me they aren't a viable replacement to hydrocarbons. Nuclear with hydrogen is.

    Welcome to the site! I look forward to reading more.

  • John

    November 25, 2008

    Here goes the tax increases...

  • Sam Cass

    November 25, 2008

    "Here goes the tax increases..."

    Well, we could just issue more debt to fund these projects. We're good at that.

  • JRodgers

    November 25, 2008

    I agree, but I also agree that Obama is going to tax wealth, not consumption unfortunately.

  • Xargo

    December 05, 2008

    In case you haven't noticed the high gas prices is what finally pricked the debt bubble. It's the main reason US auto makes are going bankrupt (not that they don't deserve it) and why many airlines went bankrupt. I had to raise rates for my business (HVAC) to stay in the black. Retail must charge more for shipping, so everything you buy now costs more. Suburb housing isn't selling because people can't afford to travel long distances to the city to work. High gas prices cause a lot more damage then most realize.
    At least with road tolls only the people that are using the roads pay. There isn't one magic answer to pay for everything without screwing a lot of other people in the process. Each state needs to individually decide what works best for them.

  • Jared

    December 09, 2008

    Raising taxes aren't the ONLY way. Gov't spending could use a budget trimming just like most American's budgets. But he is making McCain's claim that he wants to raise your taxes true.

  • Jay Rock

    December 09, 2008

    Wow. They were right, most of Obama voters are uneducated. Thank you for proving it to me with your comments. I can't believe how many people he brainwashed to win. I honestly believe some of you would buy anything Obama is selling, including horse manure. By the way can he talk one sentence without saying "um"? It is a joke to Occidental College, Columbia University, and Harvard Law School. I won't be brainwashed by you liberals or socialists.

  • Todd

    December 19, 2008

    The Obama koolaid drinkers are out in full force. More taxes to pay for projects and put people to work? Sounds like socialism to me. Take from those who have and give to those who don't have. This will solve nothing. America makes nothing. We have nothing to export to other countries, and we will continually face debt and shortage problems so long as we make/sell nothing. Let's get after the root of the problem, create manufacturing jobs, and get the GDP back in line before the country goes bankrupt.

  • Brian

    January 04, 2009

    I like the idea of a gas tax to keep the price around $3.50, this would drive more responsible behaviors and also promote replacement of older, less efficient vehicles. Long term this would actually help the auto companies. We could also add a tax cut for the purchase of a new fuel efficient vehicle and help the economy get rolling again.

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