Monday, January 28, 2008

Do We Need A Gas Tax Increase? Part I

From Marc Korman

It seems that at all levels of government, there has been some type of push for an increase in the gas tax. Given the serious potential for a recession and gas prices already around all time highs, this may be surprising. Why is there such a push for an increase in the gas tax and do we need it? In this three part blog series I will attempt to shed some light on this issue.

The first blog entry will set the stage by providing some general background information. The second blog entry will discuss the various proposals that have been made. The third and final blog entry will consider the alternative proposals.

The simple answer to why gas tax increases have been proposed is that we need a massive investment to maintain our current infrastructure and build new projects. Close to home, many of us want to see some type of Purple Line and Corridor Cities Transitway built, as well as an increase in funding for Metro maintenance to minimize crippling delays. Regular old roads also need continuous investment. There was an unfortunate reminder of the needs when the 35W bridge in Minnesota collapsed last year.

To understand the issue, some context and facts are needed. Historically, transportation projects have been funded through the gas tax, starting way back in 1919 when Oregon started taxing motor fuel. The federal government followed in 1932. The gas tax works as a type of user pays system so that those who are filling their tanks and driving on the roads are paying the cost. There are two major exceptions to this: First, the gas tax can also go to non-surface road transportation projects like transit. Though the amount spent on alternative transportation is nowhere near the amount spent on roads. Second, at times gas tax revenue has have been diverted from transportation. In the early ‘90s, the federal government used the gas tax for deficit reduction. Here in Maryland, the diversion has gone to the general fund.

At the federal level, the gas tax has been 18.4 cents a gallon since 1993, with 15.44 cents per gallon going towards the Highway Trust Fund and 2.86 cents per gallon going into the Mass Transit Account. In Maryland, the state gas tax is 23.5 cents a gallon, .1 cent lower than the state average. Marylanders pay a combined tax of 41.9 cents per gallon of gasoline whenever they go to the pump.

The idea that we need a massive investment in infrastructure has been put forth at all levels of government. Nationally, one study by the Urban Land Institute and Ernst & Young forecast a $1.6 trillion infrastructure investment deficit between now and 2010, though this goes beyond surface transportation and includes needs for sea and air ports. The state Secretary of Transportation, Keep Maryland Moving, and regional business groups are all advocating for an investment of $600 million in Maryland’s Transportation Trust Fund to meet our state needs (up from $421 million expected to be budgeted in FY08). Here in Montgomery County, the Working Group on Infrastructure Financing for County Facilities believes $1 billion is needed to meet local transportation needs. Transportation needs do not exist in a vacuum, as meeting these needs can increase economic activity, improve the environment where mass transit is involved, and improve quality of life by reducing congestion.

Another reason cited in support of a gas tax increase is that it will reduce consumption. This may or may not be true, as many people consider gasoline a relatively inelastic good, meaning demand does not fluctuate much as prices increase. Of course, there must be a limit of how high prices can go before having an effect. When gas prices rise there is also increased interest in alternative energy, which is beneficial to the environment.

In the next blog entry, we will look at the proposals that have been made.