Shrinking Revenue Spurs Gas Tax Alternatives

Several states test programs to tax miles driven, not gallons purchased.

August 15, 2014

WASHINGTON – State officials across the country are beginning to recognize that the current per-gallon gasoline tax is outdated and increasingly insufficient, according to a new report from the Pew Charitable Trusts’ Stateline publication. Gas taxes are raising less revenue as cars become more fuel efficient and more people turn to public transportation and electric cars. Meanwhile, crumbling infrastructure is increasing the need for funding. Faced with these facts, many states are looking for alternatives to the gas tax.

Oregon is already testing a program that would levy a tax on miles driven, rather than on each gallon of fuel purchased, and California is considering a similar model. Last year, Virginia eliminated the state’s 17.5 cents per gallon motor vehicle tax on gasoline and diesel, replacing it with a 3.5% tax on the wholesale price of gasoline and a 6% tax on the wholesale price of diesel, dedicating a portion of the general sales tax to the highway fund. And Missouri put a multi-billion-dollar sales tax hike for transportation on the ballot earlier this month, but voters soundly rejected it.

Only a few states index gas taxes for inflation: Florida, Maryland and Massachusetts. Stateline cites a study by the conservative Institute on Taxation and Economic Policy which concludes that most state gas taxes, especially those not indexed, are “built to fail.” After adjusting to account for growth in construction costs, the average state’s gas tax rate has effectively fallen by 20%, or 6.8 cents per gallon, since the last time it was increased.

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