Tennessee Gov. Bill Haslam (R) met with a business lobbying group in Nashville as part of an ongoing campaign to garner support for a proposed increase to the state’s gasoline tax.
Haslam addressed members of the Nashville Area Chamber of Commerce on February 7, speaking about his recently proposed gas tax hike.
Haslam suggests hiking the state’s gas tax from 27 cents per gallon to 34 cents per gallon, partially offsetting the increase by creating reductions in some other sales and business taxes.
Shifting Tax Burdens
Lindsay Boyd, policy director for the Beacon Center of Tennessee, says the gas tax proposal merely shifts tax burdens around.
“This proposal comes at a time when the state has a billion-dollar surplus or more,” Boyd said. “This proposal would attempt to address some of the infrastructure issues we have in this state, particularly with road maintenance. The proposal would increase the gas tax by 7 cents per gallon, indexing it over time. To compensate, it would cut taxes in three other areas: It would cut the food tax by 0.5 percent, it would cut the income tax on investments by 1.5 percent, and it would shift the state’s [franchise and excise] tax to a single sales factor.”
Currently, Tennessee business owners pay taxes on the net worth or estimated value of physical personal property used for commerce, whichever is higher.
‘Close to Revenue-Neutral’
Boyd says Haslam’s plan is nearly revenue-neutral.
“His proposal would actually be close to revenue neutral—about $8 million short of being revenue-neutral for taxpayers—and that’s really where a lot of the rub is,” Boyd said. “Because this is a user fee, the tax itself may not be a punitive tax. At the same time, when we have a surplus, when the state hasn’t necessarily been tight on spending in other areas, the question is: ‘Why is this the time to raise the gas tax?'”
‘A Dying Rock Star’
Baruch Feigenbaum, assistant director of transportation policy for the Reason Foundation, says the gas tax is becoming outdated and ill-suited for modern times.
“The gas tax is what I like to call a dying rock star: It’s been around for about 100 years, but—because people are driving more fuel-efficient vehicles because you’ve got electric vehicles and hybrids, [and] because it’s not indexed to inflation—it’s increasingly not keeping up with needs.”
Feigenbaum says hiking the gas tax is merely stalling for time.
“What Tennessee is trying to do here is buy itself a little time, until we have a replacement mechanism for the gas tax,” Feigenbaum said. “There’s been a lot of ideas talked about. Some people have suggested more tolling [or] statewide or national sales taxes. Some people have thought about using general fund money, the way we fund education. But the most likely replacement is probably going to be a mileage-based user fee.”
Considers Tax Hike Appropriate
Feigenbaum says Haslam’s proposal is “not that bad.”
“I’m hesitant to say much good about this one, but that being said, a 7-cent gas increase is not that bad,” Feigenbaum said. “It’s probably something that would be appropriate. We saw Pennsylvania put through a 25-cent gas tax increase, which was certainly not needed. We saw New Jersey put through a 23-cent gas tax, which also wasn’t needed. Seven cents is not bad.”
Tennessee lawmakers ought to get creative with road policy, Feigenbaum says.
“They’ve got to start looking toward the future, whether that includes a trial of a mileage-based user fee or do some type of electric vehicle fee,” Feigenbaum said. “I’d like to see Tennessee do something a little more creative than just a flat gas tax increase, because that really does not solve the long-term problem.”