In the coming days, President Obama will officially unveil a plan to fund major enhancements to transit, rail, and other infrastructure projects with a $10 tax per barrel of crude oil. While the tax would initially fall on oil companies, its ultimate impact would be similar to the nation’s existing gas tax—albeit somewhat broader since it would affect not just gasoline and diesel fuel, but also heating oil and other petroleum products.
According to our updated policy brief, the federal government has now gone over 22 years without raising the gas tax. At the state level, by contrast, gas tax increases or reforms have been enacted in 18 states since 2013 and are once again major topics of discussion.
With the average price of gas now well below $2 per gallon, state lawmakers have been more willing to accept the fact that refusing to update their gas tax rates for years, or even decades, has seriously harmed their ability to maintain and expand their transportation networks. Despite the progress being made, we count a total of fifteen states that have waited twenty years or more since last raising their gasoline tax rates. Though in some of those states—such as Alaska (45.8 years), Mississippi (27.1 years), South Carolina (27.1 years), New Jersey (25.6 years), and Alabama (23.7 years)—proposals to raise gas taxes have recently received the backing of governors or other key lawmakers.
Fortunately, gas tax procrastinators in search of a better model have plenty of examples from which to choose. Our second updated brief spotlights states with smarter, variable-rate gas taxes that can rise automatically alongside inflation, vehicle fuel-efficiency, or other relevant measures.
In the long-run, we know that construction costs and vehicle fuel-efficiency are almost guaranteed to continue increasing. Given this reality, we also know that levying a flat gas tax rate for years, or even decades, without any kind of adjustment is a recipe for fiscal imbalance as fuel-efficient vehicles consume less gas and each gas tax dollar collected is stretched thinner.
Ultimately, those states with variable-rate gas taxes are much better positioned for the long-run than the states—and the federal government—that levy fixed-rate gas taxes whose rates have been outdated for far too long.
Read the briefs: