Across the nation, gas taxes in many states keep increasing while the quality of roads and bridges keeps declining.
Here are 6 surprising and little-known reasons for the disparity:
1. The types and the amounts of gas tax vary widely from state to state.
The federal component of the gas tax – which has remained constant since 1993 – is 18.4 cents per gallon for gasoline … and 24.4 cent per gallon for diesel fuel.
States levy gas taxes in a variety of ways:
- Per-gallon excise taxes collected at the pump
- Excise taxes charged to wholesalers and passed on to consumers in the form of higher pump prices
- Sales taxes charged on the purchase of gasoline or diesel fuel
- A combination of two or more methodologies
State per-gallon tax rates vary widely – from a low of 14.65 cents per gallon in Alaska to a high of 58.7 cents per gallon in Pennsylvania.
Most Californians are probably aware that their state gasoline tax increased by 12 cents per gallon on November 1, 2017… and that there’s a ballot measure to repeal that increase – Proposition 6 – on the November 2018 midterm
But they may not know that the tax on diesel fuel increased by 20 cents per gallon at the same time … and new vehicle registration fees were added.
It gets worse:
- Californians – due to a complicated cap-and-trade program – pay more for gasoline than all other states except Hawaii.
- Cap-and-trade was recently extended for another decade – to 2030 – and could raise the price of gasoline by as much as 73 cents per gallon.
- Since a major Torrance, CA refinery fire in February 2015, Californians have been paying an additional surcharge on gasoline totaling $15 billion! The unexplained surcharge will add another $3 billion to the cost of gas in 2018. See https://energyathaas.wordpress.com/2018/02/26/californias-mystery-gasoline-surcharge-continues/
- California taxes the tax by applying the combined local and state sales tax – which ranges from 7.25% to 9.75% – on top of the gas tax.
- Residents of Alameda and Santa Clara counties pay an additional one-cent or half-cent transportation tax to fund local “improvements.”
- A portion of residents’ property taxes in Alameda, Contra Costa and San Francisco counties help pay for the Bay Area Rapid Transit (BART).
To find out how much tax per gallon –on average – you pay for gasoline in your state, click here: https://taxfoundation.org/state-gas-tax-rates-july-2018/
2. Funding for public ground transportation is a complicated and inefficient political morass of fees and taxes and accounting tricks.
The federal and state taxes you pay on every gallon of gasoline or diesel fuel you buy are not the only sources of funding for road construction, repair and maintenance.
Politicians are always looking for new and creative ways to collect additional taxes and fees for transportation projects. Here are some of the fees that are added to gas taxes:
- The weight fees truck drivers are charged at weigh stations
- A portion of car registration and license fees
- A portion of the property tax on tractors, ATVs, jet skis and other vehicles used on private property, not public roads or highways
- 17 states charge an additional registration fee for electric vehicles to replace the gas taxes that are not paid
- California has added a new “transportation improvement fee”(TIF) to the annual cost of vehicle registration
All of these fees are lumped together with gas taxes to create a total budget for transportation projects.
3. Gas tax revenue isn’t all used for road construction, maintenance and repair.
Some states “borrow” gas tax revenue and transfer it to the general fund to make up for a budget deficit, or to pay for other non-transportation project.
Here are some other common uses of funds earmarked for road construction, maintenance and repair:
- Public transit – buses, subways, trains, etc.
- Creation of bike paths and lanes
- Traffic law enforcement
- State DMV
- State and local Department of Parks and Recreation
- Administrative costs of collecting, distributing and auditing gas taxes and fees
- Debt service – bond interest and principal payments
4. Gas tax collection and revenue distribution is inefficient and wasteful.
Having a two-tiered gas tax system – both federal and state – means having twice the bureaucracy, twice the overhead and twice the cost of collecting and distributing the revenue.
And transportation projects are decided by politicians, not by transportation engineers and experts.
Politicians tend to focus on high-profile new construction projects that they can brag about in the next election cycle.
In such a political environment, much-needed road repair and maintenance falls by the wayside in favor of new construction – which may be far less important.
It’s a very wasteful and inefficient system…
No business owner would be able to stay in business … much less make a profit … running a business this way.
But since politicians are using your tax dollars – not their own money – they don’t care about efficiency.
I talk about bureaucratic waste and government inefficiency in my book, The Deep State: 15 Surprising Dangers You Should Know. If you haven’t already ordered the book, you can pick up a copy by clicking here: www.deepstatebook.com
5. Gas tax revenue is falling due to mileage mandates and the increase in hybrid and electric vehicles.
Federal mileage requirements mandating more fuel-efficient engines means cars are getting higher mileage and using less gasoline annually…
The result: lower gas tax revenue.
Also, it’s estimated there are 2 million electric vehicles in use nationwide … none of which are paying gas taxes.
The $100 average fee charged by 17 states to offset the lack of gas tax revenue is far less than the $750 in annual gas taxes paid by drivers of conventional gasoline-powered vehicles.
6. Gas tax rates and revenue aren’t keeping up with the increasing costs of road construction, maintenance and repair.
Gas taxes aren’t indexed for inflation … or for the price of gasoline. So gas tax revenue can’t possibly keep up with the increasing costs of road maintenance and repair – much less the skyrocketing cost of new road construction.
The current gas tax model of highway funding is unsustainable. A new model needs to be developed and implemented…
One suggestion that’s been offered is to treat the national and state highway systems as public utilities … and fund them the same way utilities are funded.
A new book by a transportation policy expert at the Reason Foundation describes how such a system would work.
The state of Oregon is already experimenting with it…
I will describe this new proposal in an upcoming Huey Report article.
Watch for it…
What do you think? Write me at [email protected]