Infrastructure & Environment

Gas Tax Increases Still a Hard Sell in States and Congress

Just as proposals to increase gas taxes to pay for roads have failed in most states, Obama's latest pitch to tax oil companies is likely dead on arrival.
by | February 5, 2016

Raising the gas tax is a tough sell in Missouri.

For one thing, the state's constitution limits the total annual increase in all taxes and fees to about $90 million. Since each penny of tax on gasoline brings in $39 million, lawmakers couldn't increase the tax by much more than 2 cents. There's widespread recognition that roads require more revenue, and the state's gas tax is among the lowest in the nation. But even a modest-sized bump is unlikely to pass this year.

"In an election year, it's an uphill battle," said Glen Kolkmeyer, who chairs the Missouri House Transportation Committee.

The same is true all over the country.

Many states have long lists of projects that are approved but not paid for. Even with the recent passage in Congress of a five-year, $300 billion package -- the first major federal transportation bill in a decade -- there's not enough money to make up the shortfalls in states. Despite all that, most governors and legislators are reluctant to raise their gax tax rates to increase infrastructure funding.

"Raising taxes in any form continues to be a very radioactive strategy," said Sujit CanagaRetna, a senior fiscal analyst with the Council of State Goverments.

President Obama hopes to help close the gap. On Thursday, the White House said it will ask Congress for a new $10 per barrel tax on oil, which amounts to 24 cents per gallon. The proposal, which will be part of the president's budget request, would raise up to $32 billion a year for infrastructure and reward states for investing in transit and clean energy.

"The fee raises the funding necessary to make these new investments, while also providing for the long-term solvency of the Highway Trust Fund to ensure we maintain the infrastructure we have," the White House said in a fact sheet.

With the average price of a gallon of gas at the lowest level since 2009 (below $2), drivers can presumably afford to pay more -- but asking them to do so remains politically difficult. Obama's plan, which would tax oil companies that would likely place some of the burden on drivers, is expected to be dead on arrival in Congress.

At the state level, there is a recognition that more money has to be found for infrastructure -- somewhere.

"States could decide not to build roads, but that's not a viable option," said Richard Auxier, a state tax expert at the Urban Institute.

When Arkansas Gov. Asa Hutchinson unveiled a $750 million transportation package last month, he emphasized that the plan would not increase taxes overall. Instead, money would be shifted from various other accounts, such as sales taxes on cars and nonallocated surplus funds.

"There's a lot of redirection of current taxes, but we're not raising anything," said J.R. Davis, Hutchinson's spokesman. "There would be no additional burden on taxpayers by any means."

But Davis conceded that everything else has to go as planned with the budget to make the transportation dollars add up.

Eight states did approve gas tax increases last year -- including conservative places like Georgia, Idaho and Nebraska -- and another eight did so the previous two years.

"That's more than we've seen in a significant amount of time," said Allison Premo Black, senior economist with the American Road and Transportation Builders Association.

Nevertheless, gas taxes remain highly unpopular throughout most of the nation.

In California, the tax rate is tied to the price of gas, much like a sales tax, rather than taxing a certain number of cents per gallon. Falling prices have meant plummeting revenues, leading the California Transportation Commission last month to cancel $754 million worth of projects over five years, or 38 percent of the total. In his State of the State address, California Gov. Jerry Brown implored legislators to "bite the bullet and enact new fees and taxes" to reduce the state's $77 billion backlog of road repairs. But what couldn't pass in a special session last year isn't expected to get much further in an election year.

Tennessee Gov. Bill Haslam, who has repeatedly insisted on the need to find more money for roads, is expected to wait until next year to make a big push to win over reluctant legislators for a tax increase. But critics say waiting won't make a difference.

"Opposition is going to be just as strong next year as it is this year," said Ben Cunningham, spokesman for Tennessee Tax Revolt. "People are skeptical about the need."

In Massachusetts, voters in 2014 repealed a law that indexed gas taxes to inflation, even though it likely would have cost the average driver less than $10 per year.

Missouri Gov. Jay Nixon has given his blessing to a proposal in the state Senate to raise the gas tax 1.5 cents, while raising diesel taxes 3.5 cents. The idea is backed by business groups and hasn't even been opposed by some groups that traditionally take an anti-tax stance, such as the conservative Show-Me Institute.

Even with their support, raising the state's gas tax rate remains a tall climb. Missouri House Speaker Todd Richardson, for example, insists the state should pay for its roads without raising taxes and has been working to free up money for transportation through health savings. Other ideas being discussed include diverting money from sales taxes or increasing taxes on cigarettes.

"You just come down to these very tough political choices that aren't going to be assuaged by the low cost of gas," said Auxier, the Urban Institute scholar.


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