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Saturday, March 16, 2013

Gas Tax and Tax Reform

I was recently asked by a reporter for if tax reform might also include an increase in the gas tax.   "Will an Upcoming Tax Reform Finally Be thePlace to Hike the Gas Tax?" by Tanya Snyder,
Streetsblog Capitol Hill, 3/14/13.

I said no.  Tax reform discussions have focused on the income tax. Also, an increase to the gas tax is likely something more for a budget discussion - are more funds needed for the Highway Trust Fund (yes).

Yet, tax reform will focus on cutting back or eliminating tax preferences ("base broadening"). Will that include ones, such as repealing percentage depletion, that benefit the oil and gas industry? President Obama has already suggested this action in his FY2013 budget released in February 2012. If these changes are enacted, tax liabilities for oil companies will increase and quite possibly gas prices.  That doesn't bring in money for the Highway Trust Fund though.  It does make the public less inclined to accept a gasoline excise tax increase and for their elected officials to give them one.  So perhaps tax reform or budget dsicussions should include allocating a portion of the general fund to the Highway Trust Fund.

Tax reform, a time to review the system and identify weaknesses and how to fix them, should ideally consider these transportation-related items:
  1. Gasoline excise tax reform - with more fuel efficient vehicles on the road, people buy fewer gallons of gasoline and thus pay less excise tax, but likely drive as many miles or even more than prior to owning the fuel efficient car.  So, a new system is needed.  A common suggestion is to switch to a vehicle miles traveled (VMT) tax rather than the current fixed cents per gallon of gas purchased.  For more on the VMT tax, see this Rand study or just do a Google search on the topic. Oregon has been studying it for years and even did a pilot of it (see 12/27/12 Governing blog post). 
  2. Carbon tax - can this help reduce greenhouse gas emissions? Can it help reduce the deficit?  See this March 2013 paper on this topic from the Tax Policy Center.
Excise tax reform can be separate from income tax reform. If income tax reform is focused on the budget though, it should be considered as it affects the Highway Trust Fund. If deficit reduction is also a focus of tax reform, the carbon tax should be part of the discussion.  Note that I'm not advocating for a carbon tax as I think there are some complexities in it and a significant producer of GHG emissions is carbon, such as using gasoline.  So, can existing excise taxes help to reduce GHG emissions?

A 3/15/13 infographic from the White House suggests creation of an Energy Security Trust with "revenue from profitable oil and gas companies."  It suggests that the funds be used for energy projects that will also help create jobs.  Why not also have it help fund the Highway Trust Fund?

What do you think? Should the gasoline excise tax be raised? If yes, when? What about switching to a VMT tax? What about a carbon tax?

1 comment:

Lisa Pan said...

Businessweek had a recent article on Virginia Governor Bob McDonnell's proposal to repeal gasoline excise tax and replace it with a higher general sales tax. His reasoning is exactly the increasing mismatch between gasoline revenue and highway expenditure - fuel efficient cars on gasoline.

If approved, this will certainly increase Virginia's reliance on sales tax as a revenue source. The state rate is currently 4%.

One criticism points out that an increase in sales tax would hurt the low income more. However, while a sales tax is generally regressive, gasoline excise tax is hardly a progressive tax. Even if driving level is constant across all income brackets, would the lower income consume less gasoline (such as by using more fuel-efficient cars), thus paying less in tax? That seems questionable.

Either way, the legislature is unlikely to repeal the gasoline excise tax. In Virginia, income tax makes up 71% of the general revenue fund and sales and use tax only 20%. It would make sense for reform efforts to focus on income tax discussions.