Gas Taxes May Go Up Around The Country As States Seek To Plug Budget Holes

Jan 12, 2017
Originally published on February 4, 2017 10:59 pm

Oklahoma lawmakers are staring into a budget hole that's nearly $900 million deep — and they might not be able to cut their way out of it. Legislators are considering tax increases to help fund state government, and one idea is gaining traction: hiking taxes on gasoline and diesel.

This year could see a wave of state tax hikes on gasoline and diesel. Oklahoma is one of about a dozen states seriously considering increases, a list that includes Republican strongholds like Mississippi, Louisiana and Alaska, where Gov. Bill Walker has proposed tripling taxes on motor fuel.

Oklahoma's taxes on motor fuel haven't been touched since 1987, and there are a lot of similarities between the situation then and what the state now faces: an economy shaken by low oil prices and dwindling revenue streams that fund state government.

Raising fuel taxes helped the state in the 1980s, and lawmakers might try it again. Carl Davis, research director at the Institute on Taxation and Economic Policy, says Oklahoma lawmakers have good reason to raise taxes at the pump.

"The state has one of the oldest gas tax rates in the country," he says. "It's turning 30 years old, having not budged a single penny in 30 years."

Over the decades, the value of that unchanged tax rate — 16 cents per gallon of gasoline and 13 cents per gallon of diesel — has eroded with inflation. Today, Oklahoma has some of the lowest motor fuel taxes in the country, the American Petroleum Institute reports.

Davis says more fuel-efficient cars and trucks have also taken a bite out of that revenue stream.

"It's just the math just doesn't work to levy the same gas tax rate for 30 years. It just loses purchasing power," he says.

Pay at the pump

A lot of stars have to align for these tax increases to pass through various state legislatures, but there are a few reasons politicians — even in red states like Oklahoma — don't always mind raising them.

One is that the lion's share of gasoline and diesel taxes in Oklahoma and other states are directed to transportation — agencies and programs that build and maintain highways, roads and bridges.

"There's really no such thing as a Republican pothole or a Democratic bridge," Davis says. "It's an issue that brings the parties together."

Second, motor fuel taxes are paid by users, which, "in conservative circles," Davis says, "can be an especially appealing aspect of it."

Motor fuel taxes are regressive: They affect low-income people more than those with higher incomes. But, in recent years, gasoline and diesel prices have been pretty low. And, unlike with other taxes, Davis says there's a third reason motor fuel tax increases can be more politically palatable: The business community often supports them.

"At some point it's just not worth refusing to pay a few more pennies per gallon if the cost is going to be having to hit a pothole and get your vehicle realigned or wasting time and money stuck in traffic," he says.

The U.S. Chamber of Commerce has backed increases of federal taxes levied on motor fuel, and the State Chamber of Oklahoma supports raising motor fuel taxes as long as the increase is used to fund transportation infrastructure, says Mike Jackson, senior vice president of political affairs and advocacy.

"We have always maintained that the tax must be dedicated to the sole purpose of the preserving and improving our roads and bridges," he wrote in an emailed statement.

Fill it up

Motor fuel taxes are a relatively small revenue stream for Oklahoma, generating about $474 million in 2016, state tax commission data show. That number includes revenue from taxes on other fuels, including compressed and liquefied natural gas and aviation fuels — a drop in the bucket compared with the $4.1 billion and $2.5 billion in income and sales tax revenues.

Even if the stars do align as Davis suggested, any tax increase proposed by Oklahoma lawmakers will need a legislative supermajority — a tall order, even with a $900 million budget gap. A state ballot question to raise fuel taxes was trounced in 2005, and a bill introduced during the 2016 legislative session died in committee.

New motor fuel tax legislation is being written for Oklahoma's upcoming legislative session, which starts in February. State lawmakers and Davis point to one final reason these tax hikes might fly in 2017: It's not an election year.

"That's a major reason why this is an issue worth watching this year," Davis says.

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STEVE INSKEEP, HOST:

This year, more than two dozen states are expected to consider increasing taxes on gasoline and diesel fuel. Those two dozen states include some more conservative places where any talk of higher taxes would normally provoke a backlash. Here's Joe Wertz from StateImpact Oklahoma.

JOE WERTZ, BYLINE: Here's how long it's been since Oklahoma lawmakers increased taxes on gasoline and diesel...

(SOUNDBITE OF SONG, "LIVIN' ON A PRAYER")

BON JOVI: (Singing) We'll give it a shot. Oh, we're halfway there.

WERTZ: ...1987. Bon Jovi was setting fire to the charts, and Oklahoma lawmakers were scrambling. The state's energy-fueled economy was shaken by low oil prices and dwindling revenue streams to fund state government. Today, the tune at the state capitol is the same. Finance officials say the state is facing a $900 million budget hole. Taxes at the pump are an easy target.

CARL DAVIS: The state has one of the oldest gas-tax rates in the country.

WERTZ: Carl Davis is research director at the Institute on Taxation and Economic Policy. Over the decades, the value of that unchanged tax rate, 16 cents per gallon of gasoline and a little less for diesel, has eroded with inflation. Davis says more fuel-efficient cars and trucks have also taken a bite.

DAVIS: It's just the math just doesn't work. To levy the same gas-tax rate for 30 years - it just loses purchasing power.

WERTZ: And Oklahoma is not the only state with budget problems considering hiking motor-fuel taxes. Davis says about a dozen states are looking at increases, a list that includes Republican strongholds like Alaska, Louisiana, Mississippi and Indiana.

(APPLAUSE)

WERTZ: Here's Governor Eric Holcomb at his recent State of the State address.

(SOUNDBITE OF ARCHIVED RECORDING)

ERIC HOLCOMB: The fact is existing sources of revenue are just not keeping up.

WERTZ: Why would so many conservative politicians support tax increases? Davis says one reason is that motor-fuel taxes pay for popular projects like this.

(SOUNDBITE OF TRAFFIC)

RICK LOWRY: What we're working on today - we're just chipping the bridge. We're getting loose concrete and stuff off our bridge.

WERTZ: Rick Lowry is supervising a crew of men armed with a scissor lift and shovels. They're under a bridge, battling three of the Department of Transportation's biggest enemies, salt, sand and water.

(SOUNDBITE OF SHOVELING)

LOWRY: You know, it could fall off the bridge, straight through a car window or something. And that's the thing we're more concerned about than anything.

WERTZ: Motor-fuel taxes are a relatively small revenue stream in Oklahoma. But here and in most other states, the money pays for roads and highways and transportation, things Davis says have bipartisan and public support.

DAVIS: There's really no such thing as a Republican pothole or a Democrat bridge. It's an issue that brings the parties together.

WERTZ: Davis says conservative states support motor-fuel taxes because it's the user who pays them. He warns gasoline and diesel taxes are regressive. They affect low-income people more than those with higher incomes. But in recent years, gas prices have been pretty low. And unlike other taxes, Davis says the business community often supports increasing them.

DAVIS: At some point, it's just not worth refusing choosing to pay a few more pennies per gallon if the cost is going to be having to hit a pothole and get your vehicle realigned or wasting time and money stuck in traffic.

WERTZ: Any tax increase proposed by Oklahoma lawmakers will need a legislative supermajority, a tall order even with a $900 billion budget gap. But there's another reason why motor-fuel tax hikes might fly in 2017. It's not an election year. For NPR News, I'm Joe Wertz in Oklahoma City. Transcript provided by NPR, Copyright NPR.