Extras on Excise: Running Out of Gas Tax?

New Hampshire drivers will soon pay more per gallon in gas tax, and in return their Interstate 93 widening project will be funded, along with other highway projects. On the heels of several states’ gas tax increases in 2013, the Granite State is the first this year to enact a gas tax increase, via S.B. 367.

It is the New Hampshire’s first gas tax increase since 1991, but that does not mean it was an easy sell.  New Hampshire State Sen. Jim Rausch (R) tells Bloomberg BNA in this week’s Weekly State Tax Report that he originally wanted to index New Hampshire’s gas tax to inflation as well, but doing so would have been politically untenable.

“That probably would kill the bill,” Rausch said. He said he opted to eliminate the inflation indexing to keep the fixed-rate increase alive. New Hampshire drivers will pay 22.2 cents per gallon beginning July 1—a 4.2 cent increase over the current 18-cents-per-gallon rate.

The battle is a familiar one for other states searching for more transportation revenue, which is what gas tax normally supports. Massachusetts may be one example of the political tenuousness that comes with requiring drivers to pay more for gas.

In 2013, Massachusetts’ Democratic-controlled Legislature overrode the governor’s veto and increased the state’s gas tax by 3 cents, from 21 cents per gallon to 24 cents per gallon, and indexed the gas tax to inflation beginning in 2015. This year is an election year in Massachusetts, and the Associated Press reported that the gas tax battle is reigniting as Republicans try to make headway in elected offices in the executive and legislative branches. Some Republican candidates support a statewide ballot question to repeal the gas tax inflation indexing provision. 

Some organizations, such as the Institute on Taxation and Economic Policy (ITEP), recommend in a May 2014 policy brief that some form of gas tax indexing, whether it is indexed to inflation, indexed to the price of gas, indexed to construction cost inflation, etc., is necessary for gas tax to remain a viable revenue source for transportation funding. That’s because fixed-rate gas taxes lose buying power over time if they are not increased. The revenue stream is further eroded as people drive more fuel efficient vehicles and opt to drive less.

Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: Do you think states should increase their gas tax rates and/or index them to inflation?

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