Gas Tax Changes Pick Up Speed

Earlier this week, legislators in Minnesota overrode Governor Tim Pawlenty’s veto and enacted a $6.6 billion transportation plan, one of the key elements of which is a 8.5 cent per gallon increase in the state’s gas tax.  While higher gas taxes tend to fall harder on low-income individuals and families, the plan does include a refundable low-income tax credit of up to $25 per family to help mitigate the regressive impact of the larger levy.  Other states considering proposals to raise their gas taxes to meet transportation funding shortfalls would do well to follow Minnesota’s lead and provide similar credits.

A gas tax increase that will soon be before the Nebraska Legislature may also be worth emulating in some respects.  A bill there would effectively increase the state’s gas tax by 3 cents per gallon. But it is the means by which that increase would be accomplished that is notable. The bill would reduce the existing gas tax by 8 cents per gallon and instead impose a tax equal to 5 percent of the wholesale price of gas.  Using what amounts to a sales tax on gasoline rather than an excise tax is preferable since it ensures that state revenues are more responsive to economic growth.

Lastly, raising the gas tax wasn’t envisioned in New Jersey Governor Jon Corzine’s transportation or budget plans, but, in a new report, New Jersey Policy Perspective (NJPP) argues that it ought to be part of any comprehensive approach to improving state finances.  In observing that the New Jersey gas tax has been raised just once since 1972, the NJPP highlights one of the key flaws with excise taxes like the gas tax – they fail to grow with inflation,  the economy, or personal income.  NJPP points out that a 20 cent increase in the Garden State gas tax would mean $1 billion in new state revenue, a portion of which could be used to lessen the impact of such a change on low-income residents or to support mass transit improvements for all.