State governments take the lead on gasoline tax increases

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Excise taxes on gasoline increased July 1 in 12 states, many of which are phasing in the hikes enacted in earlier years or now index the tax to inflation, raising billions of dollars of additional revenue for transportation.

The Institute on Taxation and Economic Policy reports the largest increases are 19 cents a gallon in Illinois, which last increased its gasoline tax in 1990, and 10.5 cents a gallon in Ohio, where the last increase was in 2005.

California gas taxes increased 5.6 cents a gallon this week and South Carolina’s rose by 2 cents a gallon. Maryland’s gas rose rose by 1.4 cents a gallon while Rhode Island and Tennessee began levying an additional 1-cent-a-gallon tax.

The remaining five states — Vermont, Indiana, Montana, Michigan and Nebraska — increased their tax by less than a penny per gallon.

A roughly equal wave of state gasoline tax increases are scheduled for Jan. 1, while a couple of states have increases scheduled for Oct.1.

Fives of the states recently enacted the tax hikes to raise an additional $2.6 billion in annual revenue for transportation, according to the National Association of State Budget Officers.

All this comes as Congress continues to balk at gasoline tax increases to fund new infrastructure. Congress ultimately will have to find new revenue for the Highway Trust Fund by the autumn of 2020 when the current authorization expires.

In the meantime, the states continue to take the lead in increasing funding for surface transportation and transit.

States collected more than $45.2 billion in motor fuel taxes in 2017 compared to $36.8 billion 10 years earlier, according to the Federal Highway Administration.

“States can only let their roads and bridges get so bad before they have to do something,” said Carl Davis, research director at ITEP.

The most dramatic example of legislative action taken this year is Illinois, which doubled its gasoline excise tax this week to 38 cents a gallon and increased its diesel fuel tax by 24 cents a gallon.

And after having waited 29 years since the last gasoline tax increase, Illinois also has decided to make future increases annually indexed to inflation.

Ohio Gov. Mike DeWine’s request to automatically index the excise tax on gasoline and diesel to inflation in future years was rejected by his legislature.

But the Ohio legislature did agree to a 10.5 cents gasoline tax increase and an increase in diesel fuel taxes by 19 cents a gallon.

Ohio will use 55% of the estimated $865 million in new revenue for state projects with the remaining 45% going to local governments.

California’s gas tax received national attention last year when voters in the state rejected a referendum to repeal the increase.

California also is joining the growing number of states that are indexing future increases to inflation.

Davis said 22 states have some kind of variable rate gas tax, including those that have it linked to the price at the pump.

The second most popular policy is indexing annual increases to the inflation rate. Alabama’s inflation index is linked to the cost of highway construction rather than consumer prices.

Davis said inflation adjusters are good for state and municipal transportation departments because it’s taking a long time to plan and to build many projects. “It’s sure helps to have a sustainable revenue source in place where you know you’re going to have the money be there not just next year and you’ll have sustainable growth over time,” he said. “Having these small increases to preserve purchasing power helps in budgeting.”

South Carolina expects the generate an additional $70 million annually from the 2 cents a gallon increase that will bring the state gasoline tax to 22 cents. It’s the third installment of a six-year phased increase of 12 cents a gallon approved by the state legislature in 2017.

The funds raised will go to South Carolina’s New Gas Tax Trust Fund for road maintenance, repairs and improvement as part of a $1 billion plan for road and bridge work across the state.

South Carolina plans to replace half of the state’s 750 structurally deficient bridges, double its road resurfacing work, improve 140 miles of interstate highways and add safety features to 1,000 miles of rural roads.

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State taxes State and local finance State tax revenues Gasoline tax Washington DC
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