Sweet Sixteen: States Continue to Take On Gas Tax Reform

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UPDATE: A total of eighteen states have now taken action on the gas tax since 2013.  On July 15, Washington Gov. Jay Inslee signed legislation raising the state’s gas and diesel taxes by 11.9 cents.  The increase takes effect in two stages: 7 cents on August 1, 2015 and 4.9 cents on July 1, 2016.  Similarly, on November 10, Michigan Gov. Rick Snyder signed legislation raising the state’s gasoline tax by 7.3 cents and its diesel tax by 11.3 cents, effective January 1, 2017.  These tax rates will also grow alongside inflation in the years ahead.

In just the last three months, eight states have approved increases in their gasoline taxes to fund additional spending on infrastructure maintenance and expansion.  When taken in combination with gas tax increases or reforms enacted in 2013 and 2014, a total of sixteen states have acted to improve their gas taxes in just over two years.

These increases, many of which took place in states under Republican control and with the backing of the business community, stand in stark contrast to most state tax debates that have been decidedly anti-tax in recent years.  They also differ sharply from the approach being taken in Congress, where over twenty-one years of inaction has resulted in the federal gas tax losing almost 40 percent of its purchasing power.

2015 Actions

1. Georgia: A 6.7 cent increase will take effect July 1, 2015, and future increases will occur alongside growth in inflation and vehicle fuel-efficiency.

2. Idaho: A 7 cent increase will take effect July 1, 2015.

3. Iowa: A 10 cent increase took effect March 1, 2015.

4. Kentucky: Falling gas prices nearly resulted in a 5.1 cent gas tax cut this year, but lawmakers scaled that cut down to just 1.6 cents.  The net result was a 3.5 cent increase relative to previous law.

5. Nebraska: A 6 cent increase was enacted over Gov. Pete Ricketts’ veto.  The gas tax rate will rise in 1.5 cent increments over four years, starting on January 1, 2016.

6. North Carolina: Falling gas prices were scheduled to result in a 7.9 cent gas tax cut in the years ahead, but lawmakers scaled that cut down to just 3.5 cents.  The eventual net result will be a 4.4 cent increase relative to previous law (though now there is talk of allowing further cuts to take place and hiking drivers’ license fees to make up some of the lost gas tax revenue).  Additionally, a reformed gas tax formula that takes population and energy prices into account will result in further gas tax increases in the years ahead.

7. South Dakota: A 6 cent increase took effect April 1, 2015.

8. Utah: A 4.9 cent increase will take effect January 1, 2016, and future increases will occur as a result of a new formula that considers both fuel prices and inflation.  This reform makes Utah the nineteenth state to adopt a variable-rate gas tax.

2013 and 2014 Actions

 9. Maryland (2013): The first stage of a significant gas tax reform, tying the rate to inflation and fuel prices, took effect on July 1, 2013.  So far the gas tax rate has increased by 6.8 cents.

10. Massachusetts (2013): A 3 cent increase took effect July 31, 2013.

11.  New Hampshire (2014): A 4.2 cent increase took effect July 1, 2014.

12.  Pennsylvania (2013): The first stage of a significant gas tax reform, tying the rate to fuel prices, took effect on January 1, 2014.  So far the rate has increased by 19.3 cents per gallon.

13.  Rhode Island (2014): The gas tax rate was indexed to inflation.  This will result in a 1 cent increase on July 1, 2015 and likely further increases every other year thereafter (in 2017, 2019, etc).

14.  Vermont (2013): A 5.9 cent increase and modest gas tax restructuring took effect May 1, 2013.  Since Vermont’s gas tax rate is linked to gas prices, however, the actual rate has varied since then.

15.  Virginia (2013): As part of a larger transportation funding package, lawmakers raised statewide diesel taxes effective July 1, 2013, as well as gasoline taxes in the populous Hampton Roads region.  Outside of Hampton Roads, gasoline taxes are 1.3 cents lower than they were before the reform, but a new formula included in the law will cause the tax rate to rise alongside gas prices in the years ahead.

16.  Wyoming (2013): As the first state to approve a gas tax rate increase in over 3.5 years, Wyoming’s 10 cent increase took effect July 1, 2013.

Gas Tax Debates Continue

There is little doubt that more states will join this list in the months and years ahead.  Michigan lawmakers, for example, are considering a plan that would raise the diesel tax and then index both gasoline and diesel taxes to inflation.  Unfortunately, that plan would also scrap the state’s Earned Income Tax Credit (EITC) – a vital tool for lifting families out of poverty and offsetting regressive taxes such as the gas tax.

In South Carolina, the debate is playing out in a similarly troubling way as lawmakers discuss pairing a gas tax increase with income tax cuts that, depending on the specifics, could ultimately flow overwhelmingly to high-income taxpayers.

Following years of income tax cutting, Kansas lawmakers are reportedly considering a gas tax increase to help improve the state’s financial standing.

And in Washington State, the Senate passed an 11.7 cent gas tax increase earlier this year that may still be alive as part of the state’s ongoing special sessions.

Even if these states do not act this year, it’s clear that more gas tax increases and reforms are on the way.  Twenty states have gone a decade or more without a gas tax increase, and in many of those states (Missouri and Tennessee, for example) there is a growing recognition that outdated gas tax rates will have to be addressed sooner rather than later.

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