This is the sixth and final installment of our series on 2016 state tax trends.
Boosting funding for transportation infrastructure—especially with gas tax increases—has been one of the most pronounced trends in state fiscal policy throughout the last three years. With most state legislative sessions now underway, all signs point to that trend continuing this year. There are at least nine states where gas tax increases will receive serious consideration in 2016, and a few additional states where a gas tax debate appears likely in 2017.
Most of the gas tax increases under discussion right now would help restore at least some of the purchasing power they lost while being frozen in time for as long as 20 years or more. But too many of these long-overdue gas tax updates are only being considered on the condition that they are coupled with an equal, or larger, cut in other taxes. Since those other taxes tend to fund services such as education and health care, these “tax shift” efforts have more to do with reshuffling state investments than with enhancing them.
That being said, some amount of tax cutting alongside a gas tax increase can be justified. Lower- and moderate-income families are less able to afford a higher gas tax, so there is good reason to consider pairing gas tax increases with a targeted tax cut specifically for those families. Unfortunately, however, most of the tax cut proposals being considered alongside gas tax increases (such as estate tax cuts in New Jersey and income tax cuts in Indiana and South Carolina) are not at all targeted to taxpayers of modest means.
Nonetheless, the gas tax debate marches on. The nine states where gas tax debates are already underway this year are:
1. Alabama: Almost 24 years have passed since Alabama last raised its gas tax. Gov. Robert Bentley is supportive of efforts to update the tax this year, though he has not identified what level of increase he would support and has also not shown an interest in leading the charge on this issue. A legislative committee holding hearings on the idea heard suggestions for an increase as large as 12 cents per gallon, and the chair of the legislature’s Joint Transportation Committee says there is a 70 percent chance that a gas tax hike could be enacted.
2. Alaska: The falling price of oil has decimated Alaska’s public revenues, and Gov. Bill Walker has proposed a package of tax increases to help close the yawning budget gap. Among Walker’s proposed changes is an increase to the state’s lowest-in-the-nation gas tax rate from 8 cents to 16 cents per gallon. No state has gone longer than Alaska without adjusting its basic gas tax rate (though it did add a small fee to gasoline last year), so there is a strong case to be made for updating the tax.
3. California: In his most recent budget proposal, Gov. Jerry Brown reiterated his support for a 6 cent per gallon increase in the state’s gasoline tax and an 11 cent increase in the diesel tax. Since California’s gas tax rate is tied to the price of fuel, its transportation revenues have been dramatically reduced by falling gas prices. While the fate of Brown’s proposal is far from certain, it did receive a high-profile endorsement from the Los Angeles Times and reportedly has some degree of bipartisan support in the legislature.
4. Hawaii: Gov. David Ige has proposed increasing Hawaii’s gasoline excise tax rate by 3 cents per gallon in order to generate additional funding for roads and other forms of transportation. Vehicle registration fees and taxes based on vehicle weight would also rise if Ige’s bill becomes law.
5. Indiana: Legislation passed by the Indiana House of Representatives would raise the state’s gas tax by 4 cents per gallon and allow the rate to grow alongside inflation in the years ahead. The bill faces an uphill battle, however, as Gov. Mike Pence is opposed to raising the gas tax and both he and the state Senate would prefer a short-term fix relying on general revenues. In an attempt to gain the governor’s support, Indiana House members attached a gradual cut in the personal income tax to their gas tax bill. An ITEP analysis of the package (which also includes a cigarette tax increase) showed that most taxpayers would see their overall tax bill rise under this swap. At the same time, upper-income residents would receive a net tax cut and would benefit from the infrastructure enhancements funded by their less fortunate neighbors.
6. Mississippi: Business groups in Mississippi would like to see lawmakers enact the state’s first gas tax increase in 27 years, and Gov. Phil Bryant is supportive of that effort if it is accompanied by equally large tax cuts. Bryant said that cutting the state’s corporate franchise tax could be one way to accomplishing that goal, though it may not be his preferred route. According to the governor, “This tax cut does not need to apply to large corporations. They are and have been receiving the reduction in fuel cost for some time now. It is the working families of Mississippi I am concerned about.” Notably, however, the chair of the Mississippi House Appropriations Committee is unenthusiastic about the idea of cutting general fund taxes in order to justify an increase in the gas tax, explaining that going that route means “you’ve paid for roads at the expense of the general fund.”
7. Missouri: Limits in Missouri’s constitution make it difficult to enact more than $90 million in tax increases in a given year—so Gov. Jay Nixon and some state legislators have thrown their support behind an $85 million plan that would raise gas taxes by 1.5 cents and diesel taxes by 3.5 cents per gallon. While the proposal has received the backing of at least one Senate committee, House Speaker Todd Richardson would prefer to redirect other state funds toward infrastructure. More specifically, the St. Louis Post-Dispatch explains that the Missouri Legislature is considering taking money it saved by slashing programs for the poor, especially poor children, and devoting it to highways.”
8. New Jersey: Before suspending his presidential campaign, Gov. Chris Christie told a New Hampshire audience that “I’m not going to increase the gas tax” in New Jersey. Legislators in the state, however, are not so sure. In the past, Christie has appeared amenable to a gas tax increase as long as it is paired with cuts in other taxes. Assembly Speaker Vincent Prieto, who supports a gas tax hike, said that he takes Christie’s comments “with a grain of salt … He does know that we are running out of money.” Unfortunately, the tax cut options that appear to be on the table are not at all well-suited to offset the regressive impact of a gasoline tax increase. Estate tax cuts and an expanded income tax break for taxpayers with significant pension income are the most frequently discussed tax cut options.
9. South Carolina: Lawmakers in South Carolina are considering a package of tax changes that includes a gas tax increase of 12 cents per gallon (the first such increase in 27 years) and a hike in vehicle registration fees. Gov. Nikki Haley has insisted that any increase in transportation taxes be accompanied by an equal, or larger, decrease in general fund taxes. Some of the tax cuts under consideration—such as an Earned Income Tax Credit—could help offset the disproportionate impact that gas taxes have on low-income families. Others, like a reduction in personal income tax rates, would primarily benefit high-income taxpayers (as our analysis of the governor’s 2015 proposal showed).
To be sure, these are hardly the only states where infrastructure funding and the gas tax have been topics of discussion. Oregon and Tennessee have each given serious consideration to gas tax increases, though lawmakers in both states have opted to delay a fuller debate until 2017. In Minnesota, Gov. Mark Dayton and the state Senate have proposed adding a price-based tax on gasoline, but the House is staunchly opposed and the Governor has since backed away from the idea, at least for the time being. In Louisiana, Gov. John Bel Edwards has yet to put forward a formal transportation funding plan, but so far he appears to be keeping a variety of revenue options on the table—including a gas tax increase included in his transition committee’s “menu” of revenue-raising options. In Colorado, calls to raise the gas tax (last updated over 25 years ago) seem to have become more common in recent months, though a lack of leadership from either the Governor or key legislators on this issue suggests that it is unlikely to gain traction this year. And in Arkansas, a funding task force and the state’s trucking industry have floated a gas tax hike as a potential infrastructure funding option, but Gov. Asa Hutchinson’s adamant opposition makes passage this year unlikely. Instead, Hutchinson wants to move funding away from education, health care, and other general services in order to spend it on highways instead.
Ultimately, there is good reason to expect that at least a few states will take action to boost funding for their transportation infrastructure in 2016. Whether those efforts will constitute a step forward, or back, for each state is yet to be determined. The gas tax increases being discussed in states such as Alabama, Alaska, and elsewhere are long overdue. But the types of “tax shifts” being debated in Indiana and New Jersey, for example, could actually reduce the fairness and long-run sustainability of those states’ tax codes.