Consumers could be squeezed with another tax hike due to the proposal by Gary Cohn, the top White House economic advisor, to increase the federal gas tax by 40%.
Cohn, the director of the National Economic Council, has reportedly told both moderate Democrats and Republicans, that they could vote on the gas tax when Congress discusses an infrastructure package early in 2018, according to an article in Politico. The idea was proposed earlier this year by President Trump as a strategy to fill the current tax deficit and shoddy roadway system.
Drivers currently pay a tax of 18.4 cents per gallon on gasoline and 24.4 cents for diesel. Since 1993, the tax rate has not changed. The levy's revenues are allocated into the Highway Trust Fund, which finances the construction and maintenance of roads, highways and mass transportation.
Taxing consumers at a higher rate as politicians have proposed lowering the tax deduction for 401(k) plans to $2,400, eliminating state and local tax deductions along with the mortgage interest deduction could affect the ability of lower and middle class Americans to save for emergencies and retirement while corporate tax cuts are being discussed on the Capitol.
The current gasoline taxes are a hidden tax on both consumers and businesses, much like the taxes on airline tickets, said Greg McBride, chief financial analyst for Bankrate, a New York-based financial content company.
"The government definitely has big deficits gaps to fill and raising the gasoline tax is a stealth way to raise revenue under the guise of being 'environmentally conscious' - when it's really just all about money," he said.
The average driver fills up with 12 gallons at the pump and the proposed tax hike could would cost consumers another 84 cents each time, said Patrick DeHaan, a senior petroleum analyst for GasBuddy.com, a Boston-based provider of retail fuel pricing information. The average price for a gallon of gasoline on Thursday is $2.47 and has remained relatively low compared to the highest cost of $4.10 a gallon on July 16, 2008.
"Every mile (based on a 25 MPG car) would cost about a quarter penny more," he said. "Given the low price environment we're in, I doubt it would do much to alter American's love for driving."
The costs of transportation have increased since 1993 as many states and cities have levied a personal property tax on vehicles which have also increased while the federal government has reintroduced tolls on many interstate highways, said Bruce McClary, spokesperson for the National Foundation for Credit Counseling, a Washington, D.C-based non-profit organization.
"To effectively assess the impact of this proposed tax increase, we should factor all of the other ways that the costs of personal transportation have increased," he said. "We should not forget that auto insurance rates have been increasing sharply in recent years, placing an additional financial burden on all licensed drivers. For those who are living on or close to the edge financially, this could be death by a thousand cuts."
Since 2013, 26 states have raised their gas taxes with eight alone in 2017, according to a report conducted by the Institute on Taxation and Economic Policy, a non-profit and non-partisan research organization in Washington.
Raising the federal gas tax is a necessity, because it would help keep the Highway Trust Fund solvent, said DeHaan. Many road and bridge projects were placed on the back burner due to a decline in funding and drivers have suffered from the aging network of roads and highways with dire consequences such as the I-35 bridge collapse in Minneapolis which killed 13 people in 2007. Inflation and the costs of construction have also risen since the last time the federal gas tax was raised nearly 25 years ago."Infrastructure has fallen victim to a lack of funding," he said. "I don't know how much longer we'll go before we see adequate funding for the nation's roads."
The increase of fuel efficiency in cars has helped drivers keep their costs lower even though they are driving 200 billion more miles than ten years ago, according to the Federal Highway Administration, but the demand for gasoline has remained the same, DeHaan said.
"To look at it a different way, $10 billion a year would only mean $200 million per state," he said. "That $200 million would be gobbled up in one or two large projects per state."
Since gasoline prices have remained low for several years, now is an "ideal" time for a hike, said Bernard Weinstein, an economist at the Maguire Energy Institute in Dallas.
"An increase in the federal gasoline tax is long overdue," he said. "The nation's roads are in a sorry state of repair and these new revenues can be used to fund improvements to America's highways and bridges. A gasoline tax hike will relieve some pressure on the government budget."
The federal coffers would receive an injection of $450 billion over ten years from raising the tax by 35 cents, according to a 2013 report by the Congressional Budget Office, said Mike Davis, a professor of business strategy at the Cox School of Business at Southern Methodist University in Dallas.
"An increase in the federal tax means that states will find it more difficult to raise taxes on gas," he said. "Many people think that while tax increases make sense, any consideration of gas tax increases should be part of the larger debate on how to control carbon emissions and transportation policy."
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