Building a Better Gas Tax

Post date: Jan 16, 2012 9:28:01 PM

As part of a project I am working on concerning transportation revenues, I was pleased to see the recent (December 2011) publication of a report by the Institute on Taxation and Economic Policy which makes a clear and convincing case for state gas tax increases. The report, Building a Better Gas Tax: How to Fix One of State Government’s Least Sustainable Revenue Sources, shows that the average state has not raised gas taxes in about a decade. If the states had been regularly raising their gas taxes in that period, keeping pace with construction costs, they would have $10 Billion a year more in hand to deal with their pressing transportation infrastructure challenges.

The report recommends that states raise their gas taxes immediately and enact legislation indexing the tax rate to a construction price index to make it sustainable. (The writers note that states which have some sort of indexing have done pretty well in keeping the value of their gas tax revenue stream.)

Why aren’t states already doing this? Lack of “foresight and courage.”

The ITEP folks also add a recommendation that states adopt some sort of Low-Income Relief measure to mitigate the regressive nature of the gas tax.

The report also sounds a warning note about a trend that I believe is not getting enough attention: raids on general revenues to fund transportation. It cites 5 states which have enacted or are planning to enact diversions of general funds to transportation. This trend will not only “result in fewer resources for education and other public priorities,” as the writers state, I believe it will put transportation into the annual budgetary scramble with education, health, housing, and other social programs – a place we do not want to be!

I like the direct, unambiguous approach of the report: “The condition of America’s transportation system is clearly unacceptable, and cannot be improved absent funding increases. Rather than steering government funds away from other priorities, states should increase their gasoline and diesel tax rates in order to generate that funding.” Indeed!