Search This Blog

Wednesday, December 21, 2011

Time to adjust gas tax

The federal and California gasoline excise tax are each 18 cents/gallon and have been at these low rates for many years (see CRS table). At the federal level, the tax doesn't generate enough to support the needs of the Highway Trust Fund (see posts of 7/28/08, 9/5/08 and 6/17/10). We drive less when gas prices rise and there are more people driving fuel efficient cars (I only put gas in my Prius about every 5 weeks but drive about the same as before I had this car).

The Institute on Taxation and Economic Policy has released a report on the gas tax and the need for states to increase the rate.

I agree. The amount should be adjusted for inflation from what was set at 18.4 cents/mile at the federal level in 1994 with an annual inflation adjustment built into the law. Perhaps it should also be raised beyond inflation adjustments, at least in California where we have ambitious greenhouse gas emission reduction targets.

Here are the recommendations of the ITEP:
  • Increase gas tax rates
  • Adjust the rates to tie to increased rates of construction costs
  • Create targeted credits to assist low-income taxpayers

We also need to rethink the cents/gallon approach because with more fuel efficient cars, we are driving the same (or maybe even more), but paying less gas tax because we buy less gas. While cents/mile approaches have been approached, they are difficult and perhaps intrusive to implement. While my lightweight Prius isn't causing much road damage, I still benefit from maintained roads and items are delivered to me via trucks and my garbage is picked up weekly by very heavy trucks so I am contributing to wear and tear on the roads and should be paying more to maintain them. Perhaps garbage fees should include a road maintenance fund.

What do you think?

1 comment:

New York Tax Filing said...

This is a great post. I actually use my family’s taxes to increase our savings rate. My husband is an awful saver, and tends to spend most of what is left in his accounts after his half of the bills are paid. I’m the saver, and so am in charge of our investments and our liquid fund. I’ve always had him *increase* his withholding when he’s started new jobs. He forgets he’s paying more of our tax bill (especially since I also do our taxes). When our fat refund comes in February, he gets a little fun money, and I roll the rest into our IRA and house fund. This way, we both pay half the bills, and both save almost the same amount of money over the course of the year, without any arguments.