On Tuesday, the Blue Ribbon Commission on Maryland Transportation Funding voted to recommend a set of tax and fee increases that would boost funding for the state’s roads and transit systems by some $870 million annually. The largest component of those reforms is a long-overdue increase and restructuring of the state’s gas tax, which has been unchanged for nearly two decades and lagging behind the cost of everything else the tax pays for. These recommendations should have a major impact on the transportation funding debate expected when the legislature convenes in January.
The proposed 15 cent increase in the state’s gasoline tax, phased-in over a three year period, is smart because Maryland’s fixed-rate gas tax (23.5 cents per gallon) hasn’t been raised since 1992, and this change would return the tax roughly to its previous buying-power (that is, adjusted to consider the rising cost of road construction).
The proposal is something legislators and their constituents should get behind because poor road conditions and traffic congestion are estimated to cost the average Maryland driver over $2,200 in vehicle repair, gasoline, and safety costs each year. The gas tax increase, however, should only cost the average driver about $77 per year according to a forthcoming Institute on Taxation and Economic Policy (ITEP) analysis.
But while the 15-cent increase is vitally important to Maryland’s roads and transit systems today, this change will only be a Band-Aid fix if legislators fail to combine it with another one of the Commission’s recommendations: allowing the rate to rise alongside the rising cost of construction. Florida already links (or “indexes”) its gas tax rate to the general inflation rate, and thirteen other states allow their gas taxes to grow alongside gas price growth. Just a few months ago, a commission in Pennsylvania proposed a similar measure that would allow their tax rate to grow over time with the price of fuel, and an influential Republican legislator there declared just last week that he would introduce legislation containing that reform.
These gas tax reforms are desperately needed because Maryland’s transportation system, like nearly every other state’s, is vastly underfunded, and for many daily commuters, time can be even more important than money. Baltimore was ranked as having the 6th worst traffic congestion in the nation, and the DC area as having the absolute worst. Recognizing that these shortcomings have real costs in terms of lost productivity, both the Maryland Chamber of Commerce and the Greater Baltimore Committee have come out recently in support of the gas tax increase. And Maryland Governor Martin O’Malley also appears likely to support the increase.
Enthusiasm for the gas tax increase, however, is only justified if it includes provisions to protect the lower income Marylanders who are likelier to feel its effects. However overdue this tax may be, it remains, like many of the fee increases being proposed, a regressive change – meaning it will disproportionately impact low-income families relative to their incomes. Seven states currently offer low-income tax credits designed to offset the effect of these sorts of “regressive” consumption taxes, and most states (including Maryland) offer similar credits that accomplish broadly the same goal.
If Maryland’s gas tax update is paired with offsetting relief provided via low-income tax credits, it’s a winning proposal with widespread benefits that deserves support.
Photo of Maryland Road Construction via Bank Bryan Creative Commons Attribution License 2.0