Lowering State Gas Taxes Not as Good of an Idea as It Seems

Tolls may be the fairest way to pay for government road work.

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Patrick DeHaan is a senior analyst at gasbuddy.com.

As state revenues across the United States have taken a harder hit than even Floyd Mayweather can deliver, state officials are looking for more revenue, and getting quite creative in their plans how to resolve the crisis.

Michigan just recently sprouted one of the more interesting ideas—the equivalent of dangling a piece of fresh meat in front of a lion—by telling motorists they want to reduce—yes you read that right, reduce—state gasoline taxes to nil. A big fat zero. Nothing. Nada. So what does Michigan have up its sleeve? In return for slashing the gasoline tax charged per gallon, officials want to raise the state sales tax one percentage point to counter—a brilliant idea for revenue.

When the story first hit newsstands, motorists were lined up behind the idea like the state was handing out free gas cards—barely anyone voiced a negative opinion. I could hear in people's comments how excited they were that gasoline prices would go down. However, make no mistake—many states are looking at large drops in revenue from gasoline taxes over the past five years when gas prices started rising and demand started dropping. Since Michigan and virtually every other state have per gallon taxes, when motorists consume fewer gallons, revenue drops. This is why Michigan is likely looking at a percentage based tax—because as prices rise for everything, gasoline included, the state will be in a more favorable position to pay the bill.

[See a collection of political cartoons on gas prices. ]

One of the main questions to pose to state officials: what guarantees will there be that you'll use the increase in sales tax for roads? That's the whole sales pitch, but sales tax revenue simply ends up in the general fund, where state officials can use it however they wish. Is this really that great of an idea? What about folks that don't have a car—is it fair to raise their sales tax to pay for something they don't use? What about the folks that use the roads most and consume the most gasoline—is it fair that they come out the best by removing a user-based tax on gasoline? I certainly am not taking the bait here. We’ve seen countless times how politicians divert money away from necessary road construction and to pork projects.

Every state is hurting for revenue, and Michigan is no exception. I believe gasoline taxes may need to be increased, and in more states than I wish. But if you want to drive, you should pay. Gasoline taxes are unpopular yes, but costs of construction have risen, costs of materials have risen. It's out of this world to expect that the same tax rate since the '90s or '80s is acceptable today. Michigan should kill the idea of slashing the gasoline tax and instead increase it, and for electric cars, charge higher registration to offset this new form of vehicle.

Other states deal with gasoline taxes and revenue differently. Texas has the highest amount of toll roads in the country, but looking at what Texas motorists pay in combined taxes per gallon—it is more than 10 cents per gallon under the national average of 49.4 cents per gallon. Perhaps tolls are a better way—not only do they ease congestion, but tolls also make those who use the roads the most pay more. I believe that to be fair.

[See the 10 priciest years in history for gas. ]

No matter how you slice it, motorists should be very wary of what’s to come for gasoline taxes and toll roads, and make sure to think things through, not just look at the surface of an issue.

Other areas with looming gasoline tax increases:

  • Maryland is looking at a 15 cent per gallon increase over three years  (5 cents per gallon increase for three straight years)
  • Virginia is contemplating an increase—no details available.
  • Vancouver, BC:  2 cents per liter increase to fund TransLink approved.
  • Lastly, if the federal gas tax (18.4 cents per gallon) is not renewed upon expiration (March 31, 2012) and is either reduced or eliminated, that is likely to widen the transportation infrastructure deficit that is being shifted from the federal to the state level. At that point, expect many states to follow Michigan’s lead. Yes, many who want to kill the federal tax argue that states do a far better job of cost containment on road projects than when federal funding and bureaucrats are part of the mix. And they may be right. But removal of the federal tax does not reduce the burden of funding. That always rests with us—the taxpayers.

    • See the 10 priciest years in history for gas.
    • See a collection of political cartoons on gas prices.
    • See a slide show of a reality check on U.S. energy sources.