Restructuring Gas Taxes Makes Good Sense

Ohio Gas Tax explainedThe Moving Ahead for Progress in the 21st Century Act (MAP-21) officially went into effect on 10/1.  While the program will keep dollars flowing to surface transportation projects for two more years, it does not solve the problem of funding America’s infrastructure for the long term.  In fact, lawmakers will once again confront the question of sustainable funding for our roads and bridges in 2014.

The government, the transportation industry and the media continue exploring many revenue alternatives.  Ideas range from creating a tax on Vehicle Miles Traveled (VMT) to adding more road and bridge tolls and adjusting the federal and state gas tax.  While each of these ideas has pros and cons, restructuring the tax on motor fuel is of immediate interest.

Many suggest that the gas tax model is broken and needs to be replaced.  But is this really true?  The gas tax has served our country well for decades, funding the construction and maintenance of roads that stretch across America.  It helped Ohio build the nation’s 4th largest interstate system, 7th largest highway network and the 2nd largest inventory of bridges.  Are there flaws in the gas tax model today?  Yes.  Can they be fixed?  Absolutely!  Let’s take a look.

The federal gasoline tax has stood at 18.4 cents/gallon since 1993.  Ohio’s gas tax has remained at 28 cents/gallon since 2005.  Because the rates are “fixed”, the purchasing power of the gas tax has not kept pace with inflation.  The tax collected on each gallon of gas stays the same while funding our transportation infrastructure becomes more expensive.  That’s the downside and the reason for considering alternative revenue sources.

On the other hand, restructuring the gas tax makes sense for a couple of reasons.  The Institute on Taxation and Economic Policy (ITEP) cites the “benefits principle” which is based on the theory that those of us who drive the most should pay the most for the improvement and maintenance of our highway system.  A gas tax handles that efficiently – the more you drive the more gas you buy and the more tax you pay. That sounds fair.  Also, the gas tax is simple and economical to administer.  Taxes are collected at the refinery and passed along to the consumer at the pump.  In contrast, administration of solutions such as the Vehicle Miles Traveled tax promises to be much more complex.

When you look at the whole picture – the necessity of maintaining a strong transportation infrastructure, a fixed tax rate that hasn’t kept up with inflation and the inherent fairness of being taxed in proportion to the amount you drive – the idea of restructuring the gas tax is clearly reasonable.  Viable reform involves two key steps.  First, increase the motor fuel tax rate to a level that generates adequate revenue for our infrastructure needs.  Second, utilize an indexed tax rate to ensure that revenue growth doesn’t fall behind inflation.  This can be achieved by linking the rate to transportation cost growth, the Consumer Price Index or even the price of gasoline.

Restructuring Ohio’s gas tax indeed makes sense.  You can learn more about it in the recent Ohio Contractor magazine article, “While Broken, Motor Fuel Tax Can Be Fixed” or by watching the Gas Tax video produced by the Ohio Construction Information Association.


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