States Narrow Down on the Gas Tax

According to the American Automobile Association (AAA), national average retail gasoline prices are currently at a relatively comfortable $2.05—a 37 percent drop from the price this week last year of $3.27. Motorists couldn’t be happier, which has presented lawmakers on both sides of the aisle with the opportunity to revisit the gas tax. The gas tax has long been considered the third rail of politics—most dare not touch it. However, it helps serve two important functions. First, the gas tax hasn’t been raised since 1993, yet it is designed to be the primary funding source for the Highway Trust Fund. Since the tax has not increased consistently with inflation, the Highway Trust Fund hasn’t been solvent since 2008 and requires continued cash injections from other federal revenue sources. Research from the Department of Transportation’s Federal Highway Administration shows that highway construction costs effectively doubled from 1993 to 2006, suggesting that on a purely budgetary level, the current gas tax does not reflect the revenues necessary to maintain effective transportation infrastructure. Second, and slightly more controversial, is the fact that the gas tax increases the price of gasoline for consumers, and it’s no secret of economics that higher prices generally decrease demand (although, many will note that gasoline demand is less responsive to price increases than other goods, given the indispensable role it plays in the economy and lack of available substitutes). If higher gas prices encourage motorists to drive less frequently, purchase more efficient vehicles, or purchase alternative fuel vehicles, those are all benefits to energy security. Of course, all those benefits come at the cost of higher gasoline prices, the benefits of which can be difficult to communicate to consumers, especially when it influences their personal finances. Despite low gas prices, federal lawmakers are always exploring workarounds to address the nation’s highway funding needs without raising the gas tax. However, things are different at the state level, where a number of legislatures are looking at today's low gas prices as an opportunity to fill voids in infrastructure funding.


The strongest push is in Iowa, where lawmakers are proposing a 10 cent price increase. Iowa’s tax hasn’t been raised since 1989, and current projections about the proposed increase show that it would provide an estimated $215 million of additional revenue to repair the state’s roads and bridges. Supporters of the hike are hoping the legislation will pass in February and will go into effect as early as March. According to the Tax Foundation and American Petroleum Institute, Iowa’s gas taxes are currently fairly low at 22 cents per gallon, only the 33rd highest in the country. Increasing the state’s tax by ten cents will represent a nearly 50 percent increase, but will still keep the tax within the typical national range. Thirty-two cents a gallon would put it within one cent of Nevada, Oregon, Wisconsin, and Rhode Island, while keeping it 20 cents below the country’s highest rate, in California. According to the Tax Justice Blog, there are twelve other states with either active pushes or other expressions of openness to the idea from governors to bolster gasoline taxes. In addition to Iowa, Georgia, Idaho, Michigan, Minnesota, Missouri, New Jersey, South Carolina, South Dakota, Tennessee, Utah, and Washington State have all seen proposals from their executive branches, ranging from 1.5 to 12 cent increases to state gas taxes. State legislatures or task forces in Montana, Nebraska, Louisiana, and Oklahoma have also broached the topic. Since most of the states in question haven’t had a gas tax increase in more than a quarter century, today’s low gasoline prices could present the necessary window of opportunity. However, it’s worth noting that despite its (relatively) high gas tax, California still has challenges covering its infrastructure costs as fuel-efficient and plug-in electric vehicles ebb away at gas tax receipts. Governor Jerry Brown is pursuing road fees and other measures to bridge the $59 billion backlog of necessary road and bridge repairs in the Golden State. California also has the country’s highest density of efficient, hybrid, and alternative fuel vehicles. As the nation’s auto fleet slowly but surely becomes more diverse and secure, it’s almost worth hoping that in the future states will no longer rely on the gasoline tax to cover infrastructure revenue requirements—not because it’s too low, but because people are simply buying less gasoline.