We retired Tax Justice Blog in April 2017. For new content on issues related to tax justice, go to www.justtaxesblog.org
When it comes to paying for infrastructure, the gasoline tax is the single most important source of revenue collected at both the state and federal levels. As a result, funding large scale improvements, or maintenance, to transportation networks usually means that the gas tax rate has to go up. In 2013, six states enacted gas tax increases or reforms (Maryland, Massachusetts, Pennsylvania, Vermont, Virginia, and Wyoming). In 2014, two more states followed suit (New Hampshire and Rhode Island). Now, with lower gas prices freeing up some room in drivers’ budgets, there are 12 states seriously considering gas tax increases in 2015: Georgia, Idaho, Iowa, Michigan, Minnesota, Missouri, New Jersey, South Carolina, South Dakota, Tennessee, Utah, and Washington State.
Georgia: Georgia House Speaker David Ralston says that a gas tax increase is possible this year and lawmakers in his chamber recently introduced a bill that would do exactly that by allowing the tax rate to growth alongside improvements in vehicle fuel-efficiency. Gov. Nathan Deal has been dropping hints that he’s open to the idea and even went so far as to call the bill a “positive step forward.” Business leaders in the state are strong supporters of boosting funding for infrastructure and the governor has been adamant that he intends to find a way to secure that funding.
Idaho: Gov. Butch Otter has yet to propose a gas tax increase this year, but he has supported increases in the past, and there is rampant speculation that a gas tax hike could be floated soon. Encouragingly, the governor made very clear in his State of the State address that he is not interested in taking money away from education to fund the state’s infrastructure, so it appears that additional revenues will have to be raised to satisfy the governor’s call for larger investments in transportation.
Iowa: Gov. Terry Branstad has been open to a gas tax increase for the last few years, but he has shown increased urgency this year on the need for additional infrastructure funding. Now, even early in the legislative session, the governor is already in serious talks with legislative leaders aimed at hammering out the specifics of how a gas tax hike could be structured—including possibly allowing local governments to raise the tax. Legislation raising the tax could be introduced within days. Such an increase is clearly needed since, after adjusting for inflation, Iowa’s current gas tax rate is at its lowest level in the state’s history.
Michigan: This May, Michiganders will vote on a package of tax changes that would raise roughly $1.3 billion in new revenue for transportation and $300 million for education each year. Most of the revenue would come through a 1 percentage point increase in the sales tax, though gasoline and diesel taxes would also be reformed in a way that would initially raise their rates by approximately 12 cents per gallon. Under the reforms, vehicle registration fees would also rise. But the package also includes an important tax cut as low-income families would see some of the gas, sales, and registration tax hikes offset by an expansion in the state’s Earned Income Tax Credit (EITC) from 6 to 20 percent of the federal credit. Michigan legislators approved this package of changes in December and Gov. Rick Snyder signed them earlier this month, saying, “Most of you know, I’m a fairly frugal CPA. This is a smart investment to make by the citizens of the state of Michigan to invest more in the roads, schools and local government.”
Minnesota: Gov. Mark Dayton and state Senate leaders have proposed applying a 6.5 percent tax to the wholesale price of gasoline. That reform would initially raise the gas tax rate by about 16 cents per gallon, and would put revenues on a more sustainable path by allowing for further increases in the future once gas prices begin to rise. Opponents of the plan criticized the fact that it will “disproportionately impact poor and middle class families.” But lawmakers don’t need to look very far for a solution to this problem. Following the deadly I-35W bridge collapse, Minnesota lawmakers enacted a gas tax increase in 2008 that included a “low-income motor fuels tax credit” dealing with this exact issue. Unfortunately, that credit was repealed after being in effect for only one year in order to help close a budget gap arising from the Great Recession. But if concerns about regressivity have returned to lawmakers’ minds, a similar credit could be implemented again—ideally on a permanent basis this time.
Missouri: Gov. Jay Nixon used part of his State of the State speech to argue that a gas tax hike “is worth a very close look.” Nixon said that “Missourians believe it’s only fair that folks who use the roads also pay for them” but explained that the state has unwisely moved away from this model as “Missouri’s gas tax hasn’t gone up a penny in nearly 20 years. It’s the fifth-lowest in the nation.”
New Jersey: State Transportation Commissioner Jamie Fox announced that he is ramping up inspections of the state’s aging bridges as they continue to deteriorate in the face of inadequate funding. New Jersey’s gas tax rate is the second lowest in the country and hasn’t been raised in almost a quarter century. Legislators in both chambers have proposed raising the tax, and Gov. Chris Christie is less hostile to the idea than might be expected, saying that “I’ve made it very clear that everything is on the table.” If a gas tax hike passes in the Garden State, there’s talk of offsetting it (in full or in part) with cuts in a different tax. One sensible option comes from New Jersey Policy Perspective, which proposed that the state’s Earned Income Tax Credit (EITC) be expanded to offset the impact of gas taxes on low-income families. A much less sensible alternative would involve eliminating the state’s estate tax, presumably to make it a little easier for heirs to large fortunes to afford the gas tax.
South Carolina: Gov. Nikki Haley surprised many people when she recently proposed a 10 cent increase in the gas tax after having repeatedly threatened to veto any such increase. Unfortunately, her proposal comes with a major condition: cutting the state’s top income tax rate from 7 to 5 percent. That change would make South Carolina’s already lopsided tax system significantly more unfair, and has been called unaffordable by The State’s editorial board. Nonetheless, talk of raising South Carolina’s historically low gas tax rate seems to be reaching a critical mass as House lawmakers debate a plan to tax gasoline based on its price, and even the South Carolina Chamber of Commerce is backing a higher gas tax.
South Dakota: Gov. Dennis Daugaard recently proposed raising the state’s gas tax by 2 cents per gallon, per year, in order to put revenues on a more sustainable path that could keep pace with the growing cost of infrastructure maintenance and construction. Gas taxes are on legislators’ minds as well, as the first bill filed in the South Dakota Senate this year would hike the tax by roughly 6 cents per gallon.
Tennessee: Gov. Bill Haslam is giving serious thought to proposing what would be Tennessee’s first gas tax hike in over a quarter century. While the governor hasn’t come out with a plan yet, he seems to understand that twenty five years of gas tax procrastination have put the state on an unsustainable course, noting that “There’s no way the state can continue on the path we’re on now. The math just doesn’t work.” State legislative leaders and local governments are reportedly interested in the idea of a gas tax hike and the Farm Bureau has softened its long-running opposition to an increase. Add to that a new report from the comptroller outlining the benefits of the gas tax, and it appears a gas tax hike is a real possibility in the Volunteer State.
Utah: Gov. Gary Herbert says that “now is the time” to raise Utah’s gas tax, and leaders in the state House and Senate are reportedly in agreement. Now the debate has shifted to whether the state should simply increase its fixed-rate gas tax (stuck at 24.5 cents since 1997 and currently at its lowest level ever, adjusted for inflation), or whether a long-term reform should be enacted with a more sustainable, variable-rate gas tax. The latter option is better policy, but either could generate significant revenues for infrastructure and allow for the roll-back of raids on education money enacted in recent years. Encouragingly, Governor Herbert supports both of these goals.
Washington State: The legislature has been debating a gas tax increase in Washington State for at least two years. The House passed a 10.5 cent increase in 2013 and the Senate seriously considered an 11.5 cent increase in 2014, but neither of those plans ever made it to the governor’s desk. This year, Senate transportation leaders say that a gas tax hike is still on the table, and House leaders say that bills debated over the last two years are a good starting point for further negotiations. Gov. Jay Inslee, for his part, is well aware that more revenues are needed.
Other States: The twelve states listed above are hardly the only ones with gas taxes in need of reform. We’re also hearing gas tax talk from legislators in Montana and Nebraska, task forces in Louisiana, research groups in Oklahoma, and media in states such as Colorado and Wisconsin. Of course, there’s plenty of bipartisan chatter about raising the federal gas tax as well. We’ll be following all of these stories closely as they develop, but for the moment, the twelve states listed above seem the most likely to act.