Opinion: The Silver Bullet

By John A. Simourian

Chairman of the Board

Lily Transportation Corp.

In April, President Obama, while discussing his concerns regarding the record high cost of fuel, stated there was no “silver bullet” to bring down the price of gasoline or cure the U.S. addiction to oil. He also said that the process will be long, and his goal is to cut oil imports one third by 2025 through a strategy that relies on alternative and renewable energy sources.

With all due respect to our president, we need a solution now, not more than a dozen years from now.

We all are aware of our country’s precarious condition, and one of the major headwinds we face is being forced to accept rising fuel costs from a foreign monopoly.

The overarching questions are:

• Will our current condition be the norm?

• Is that condition a harbinger of our impending decline in wealth and power in the 21st century?

• Are our country’s problems caused by its citizens’ addiction to oil?

America needs a straightforward, immediate plan that provides a bridge to the long-term solutions advocated by the president.

During the past two years, several well-respected organizations have published reports on the American economy and infrastructure investment. They concluded that the way to jump-start the economy is to invest $750 billion over five years to rebuild and repair America’s transportation infrastructure — creating, in the process, permanent jobs that can’t be outsourced.

The U.S. Department of Transportation’s Federal Highway Administration has estimated that each $1 billion spent on highway construction creates 30,000 jobs, both direct and indirect. That means an outlay of $750 billion over five years would create 4.5 million jobs and reduce unemployment 33%, or 3 points, bringing it down to 6%.

This major increase in employment would ignite a beneficial chain reaction in our economy:

• Tax revenues would be increased by the additional wages — as well as follow-on purchases of goods and services — and would be used to pay down debt and restore America’s credit rating to “positive.”

• Demand for housing would stabilize and grow.

• This increased economic activity would propel an increase in bond and stock market indexes, increasing the value of pension and retirement assets.

This all sounds good, but the missing component in this solution is the money to fund that $750 billion infrastructure investment.

The current federal fuel tax, which funds our roads and bridges at best inadequately — and has not been increased since 1993 — produces approximately $30 billion per year in total revenues. That’s $120 billion south of the $150 billion needed for our infrastructure.

We are all well aware of the strong political opposition to any increase in the federal fuel tax. Both political parties have stated that a fuel tax increase is “off the table” because, they say, “The American people can’t afford it in this economic crisis.”

What we need is a politically acceptable, viable means of securing the necessary funds to invest in infrastructure, solve our economic crisis and end our dependence on foreign oil.

The United States currently consumes 19.6 million barrels of oil per day, 70% of which is used to produce motor fuel. There are 42 gallons of oil in a barrel. If a tax of 57 cents per gallon were levied, it would yield $171 billion per year, and 70% of that amount would equal the $120 billion per year needed for transportation infrastructure. The remaining 30% of the tax revenue, $51 billion, could be used for repairing our water infrastructure.

By taxing oil in the barrel in this manner, the burden of the tax would fall on the domestic and foreign oil companies. Depending on their competitive positions and strategy, these oil companies may or may not pass it through to the American consumer. If they do, it will be a price increase — not a tax.

Realistically, the oil companies probably will pass the increase along to their customers. And when they do, alternative energy companies and manufacturers of efficient motor vehicles would see their comparative competitive positions enhanced.

What’s more, to offset any oil price increase to American consumers, Congress probably would extend the January 2011 employee Social Security tax decrease by several years.

Because of these mitigating factors, a 57-cent-per-gallon tax increase on oil in the barrel should be politically acceptable, will not burden the American consumer with additional net expense and will provide the following benefits, which will flow from infrastructure investments:

•Rebuilt, efficient transportation infrastructure.

• Rebuilt, modern water infrastructure.

• 4.5 million new jobs that can’t be outsourced.

• Housing stabilized and increased.

• Pension and retirement assets enhanced.

• Federal debt reduced.

• Energy independence initiated.

• Global leadership enhanced.

So, yes, Virginia — and Florida, Maryland, Tennessee, Wyoming and the other 45 — there is a silver bullet, and the means of propelling it into our current economic and geopolitical mix is your voice. Tell this country’s political and industrial leaders about this oil-in-the-barrel solution and urge them to put it into action as quickly as possible.

Lily Transportation Corp., Needham, Mass., is an asset-based dedicated logistcs provider. The author founded the company in 1958.