New Jersey drivers are paying even more at the pump as the state’s gasoline tax went up yet again in October.
The state’s excise tax on gasoline rose by 4.3 cents on October 1, increasing to 41.4 cents per gallon. Gasoline taxes in New Jersey are now the fifth-highest in the country.
In 2016, then-governor Chris Christie signed Assembly Bill 12 (A.B. 12) into law, increasing the state’s gas tax by 23 cents, cutting the sales tax from 7 percent to 6.625 percent, and phasing out the state’s death tax over two years.
A.B. 12 also created a mechanism authorizing the state treasurer to change the gasoline tax rate as necessary to maintain a $2 billion balance in the state’s Transportation Trust Fund. In Fiscal Year 2017, the fund was $43 million short of the target, triggering a tax hike in Fiscal Year 2018.
Better Mileage, Higher Taxes
Jonathan Williams, chief economist for the American Legislative Exchange Council and a policy advisor for The Heartland Institute, which publishes Budget & Tax News, says many states are raising gas taxes as cars’ gas mileage increases, to try to make up the shortfall as people use less fuel per mile while putting the same amount of wear and tear on the roads.
“Working with legislators across the country, we’ve seen a lot of gas-tax battles emerge over the last five to ten years,” Williams said. “Many states, even Republican states, have raised the gas tax to help make up for the consumption shortage.”
Regina Egea, president of the Garden State Initiative, says studies demonstrate previous gas tax hikes caused New Jersey residents to buy less gasoline.
“AAA’s recent report shows the volumes being sold in New Jersey are down 23,000 gallons,” Egea said. “It’s unsurprising to anybody who understands competitive markets, that when you raise the price you diminish demand, and that is what happened here. Fewer gallons were sold, because the tax went up.
“Increasing the gas tax another 4.3 cents will only diminish that volume even further,” Egea said. “Volumes are going to go down, and there is no cap on the Treasurer’s ability to raise the tax rate, as long as they are using it to cover the $2 billion roadworks project, which this increase is intended to cover.”
Theory vs. Practice
Williams says the actions of many state lawmakers don’t match their words regarding gas taxes and road funding.
“In theory, at least, gas taxes can be a user fee, if spent appropriately,” Williams said. “When you peel back the onion on this issue, however, you find that many states are selling gas taxes to the public as a user fee, then using the tax dollars for things far apart from road construction and maintenance.”
Williams says more states should require that gas tax revenue be used solely for highway work and not unrelated pet projects.
“Only about 25 of the 50 states earmark and protect gas-tax revenue exclusively for road construction and maintenance,” Williams said. “That is actually a very key policy in this whole debate. If states do not protect the gas tax revenue for road construction and maintenance exclusively, they run into not just policy problems but a whole slew of political problems. When you look at public polling, gasoline taxes are one of the most hated taxes in America.”
‘This Isn’t a Luxury Tax’
Egea says the series of gas-tax hikes is making New Jersey too expensive a place to live for many people, especially those in low-income households.
“This isn’t a luxury tax,” Egea said. “The users run the gamut of both income levels and geography in the state, so this gas tax increase is impacting everyone. If you think about that, then of course someone who does not have as much disposable income has to spend more on a basic need like gasoline. That is going to hurt them more than it will hurt people in the upper-income levels.
“This tax increase is one more notch in the dagger that is making New Jersey more and more unaffordable,” Egea said.