Lessons from Reagan’s 1982 Gas Tax Hike

In the fall of 1982, President Reagan’s opposition to a gas tax increase couldn’t be more clear. When he was asked at a September 28 press conference, “Can you assure the American people that you’ll flatly rule out any tax increases, revenue enhancers or specifically an increase in the gasoline tax?” Reagan responded, “Unless there’s a palace coup and I’m overtaken or overthrown, no, I don’t see the necessity for that.” 

Well, it didn’t take a palace coup. It took a mid-term election in which Republicans lost seats and rising unemployment, which cracked double digits for the first time in decades. Three months later, in December 1982, President Reagan signed a groundbreaking transportation bill that more than doubled the federal gas tax from 4 cents to 9 cents and increased transit funding.

The measure's incredible journey offers lessons for today’s leaders who face a similarly troubled landscape  – crumbling infrastructure, a highway trust fund on the verge of bankruptcy and divided government. 

Eno Trans Jeff Davis researched the provocative tale of the 1982 transportation bill and revealed how one of the most important public infrastructure bills of the 20th century became law. With his new report, “Reagan Devolution: The Real Story of the 1982 Gas Tax Increase,” Davis unearths a roadmap for how leadership, pragmatism and relationships can be leveraged to move past ideology. You can read the report for yourself here. Below are some reflections on what I think are the most relevant components for today’s debate.

1.  Under the Guise of Devolution: President Reagan understood well the nation’s infrastructure gap, but he also didn’t want to grow the size of the federal government. Initially, Reagan supported a plan that would transform the federal transportation framework by giving significant control back to the states. If Reagan was going to support a gas tax increase, the authority to spend every penny of the new increase would ultimately be given back to the states – a concept called devolution. The feds would thus retain spending authority over the current 4 cent per gallon gas tax to focus on the federal highway system, but over time, the 5-cent increase would be devolved to the states. While devolution was ultimately left on the cutting room floor, the ideological framework would give transportation supporters in the Administration the space they needed to keep the option of a gas tax on the table. These architects knew full well it was unlikely the Congress would go along with devolution, but they were appealing to Reagan’s conservative values. Ultimately, their persistence paid off.  

Today, devolution supporters point to Reagan’s efforts to return control of transportation spending authority to states but often fail to acknowledge that Reagan acquiesced in favor of pragmatism. While devolution never materialized, it was a big part of feeding Reagan’s conservative, reform minded ideology as the package was being devised. Legislators today could consider a similar approach. While devolution is not a realistic nor prudent option in my opinion, leaders could try to appease conservative devolution advocates. Congress could consider adding elements of local control of federal resources without jeopardizing the health of the nation’s interconnected network of roads. 

2.  User Fee and Shock Absorbers: Reagan was vehemently opposed to raising general income taxes, but he understood the need for increasing the gas tax because those who paid directly benefited. He always preferred to use the term user fee over gas tax.

This is how Reagan framed the discussion in his November 27 radio address. “So, what we’re proposing is to add the equivalent of 5 cents per gallon to the existing Federal highway user fee, the gas tax. That hasn’t been increased for the last 23 years. The cost to the average motorist will be small, but the benefit to our transportation system will be immense… The program will not increase the Federal deficit or add to the taxes that you and I pay on April 15. It will be paid for by those of us who use the system, and it will cost the average car owner only about $30 a year. That’s less than the cost of a couple of shock absorbers.” 

Today, the same argument could easily be restated. The gas tax hasn’t been increased in 22 years – back in 1993 – and the impact to the average driver would still cost less than the price of a couple shock absorbers. The shock absorber argument was effectively and brilliantly used often by the Administration. Because a driver would likely need to replace their shocks more frequently if the government didn’t fix the roads and potholes in disrepair, you might as well fix the roads. That logic still holds up today.

3.  Leadership: In 1982, the country was still in the grips of one of the worst recessions since the Great Depression. Unemployment had just surpassed 10 percent.  Passing a gas tax increase was just as toxic back then as it is now. After Democrats had picked up seats in the mid-term election, the President and his team knew action was needed on the jobs front. There were leaders in both the Executive and Legislative branches that had strong working and personal relationships. This trust was critical to the Democratically controlled House and Republican Senate. The transportation bill was portrayed as a “jobs” bill by both parties and the President understood the Congress was going to act. 

As a pragmatic politician, the President got on board and ultimately pushed for the bill. As Jim Baker, the President’s chief of staff said at the time, “If Reagan told me once, he told me fifteen thousand times – I’d rather get 80 percent of what I want than go over the cliff with my flags flying.”

Today, there is a serious lack of leadership in DC and trust between the Executive and Legislative branches is nearing all-time lows. As the transportation proposal moves through Congress, this may be the most challenging obstacle to overcome. If the transportation bill can be reframed as a jobs bill, like in 1982, maybe both parties can pull another rabbit out of the legislative hat and come up with a compromise that both parties could tout. 

4.  The Grease – Demonstration Projects: When the Reagan Administration got on board and started lobbying for a transportation bill, agency officials started reaching out to wavering Members of Congress. The Administration promised federal funding for pet projects across the country. Not only were “Demonstration Projects” explicitly written into the bill, but DOT officials would call wavering Members to assure certain construction projects would be funded by the DOT. Runway extensions, control towers, roads and bridges were all used to grease the congressional wheels and quiet opposition to raising the gas tax. 

Earmarks are prohibited in the current Congress. Members have little incentive to support a gas tax increase because they can’t point to projects in their states and districts. While earmarks may be out of favor with the public broadly, Congress could come up with a way to ensure enough states and districts receive their fair share of federal spending to construct key infrastructure projects that benefit the daily lives of commuters.