Extras on Excise: Will 2015 Be the Year of Gas Tax Reform?

Gas prices are the lowest they have been since 2009. Will state and federal policymakers seize on this opportunity to increase gas taxes when motorists have a little extra cash in their pockets?

The gas tax has traditionally been a tax per gallon of gasoline sold, and that money has generally been earmarked for transportation improvement projects. But the combination of motorists driving more fuel-efficient cars, paired with the widespread state adoption of fixed gas tax rates, has been chipping away at transportation funding for decades.

While the states have sometimes been slow to react on this issue, at least lawmakers seem to be beginning to understand the reasons for gas tax reform, said Matthew Gardner, executive director of the non-profit, non-partisan Institute on Taxation and Economic Policy (ITEP).  Gas tax reform was something that many lawmakers weren’t willing to talk about a year ago, Gardner said.

For example, Iowa Gov. Terry Branstad (R) has put gas tax reform on the table for his state this year, Gardner said.

“This isn't a guy who's known for his advocacy for raising taxes,” Gardner said. But he also said that “it's not a partisan thing” to recognize the basic imbalance between transportation revenue and spending.

But awareness of the issue has not always translated into action. Gardner said that close to two-thirds of states have not engaged in meaningful gas tax reform by modernizing the gas tax. With gas prices continuing to decrease, now might be the time.  On a political level, Gardner said a large source of gas tax frustration is the disconnect between services and a willingness to increase the price.

“It sure seems like a corner is being turned,” Gardner said.

These kinds of efforts are in the works at the federal level, too. In mid-2014, U.S. Sen. Bob Corker (R-Tenn.) and U.S. Sen. Chris Murphy (D-Conn.) announced a bipartisan proposal to increase the federal gasoline and diesel tax by $0.06 in each of two years, for a total $0.12 increase. They proposed indexing the federal gas tax to inflation using the Consumer Price Index so that the tax rate wouldn't lose buying power year after year, and want to offset the gas tax increase by reducing tax somewhere else, according to the proposal.

The federal gas tax, which is a flat $0.184 per gallon, has remained unchanged since 1993. That means the purchasing power of the gas tax is about 63 percent of what it was in 1993, according to a release issued by Murphy's office.

Major media outlets showed renewed interest in the proposal in early January after Corker discussed what he called the “gasoline tax user fee” on a Sunday news magazine show.

Gas prices are the lowest they have been in years, and Gardner said those falling prices are part of the reason gas tax reform can happen now—even though gas taxes have very little to do with the price of gas.

The U.S. Energy Information Administration announced in December that the average U.S. household is expected to spend approximately $550 less on gasoline in 2015 compared with 2014. That means they are on track to be the lowest they have been in 11 years.

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