Alabama legislators are now considering a major increase in the state’s gasoline excise tax. Under the new proposal, the state’s gas tax would increase by 6 cents per gallon, from 18 cents to 24 cents. This is in addition to the 18.4-cents-per-gallon federal gas tax currently levied on all U.S. drivers. The American Petroleum Institute estimates the proposed gas tax increase would bring the total taxes paid by an Alabama driver at the pump to more than 44 cents per gallon.
According to the Montgomery Advertiser, Alabama’s current gasoline tax generated $413.9 million in tax revenue in fiscal year 2015. These dollars were split between the Alabama Department of Transportation and the state’s counties. Supporters of the tax increase say it would raise an estimated $70 million in fiscal year 2016 and $100 million in fiscal year 2017.
The proposal does make an effort to combat some of the problems facing gas taxes in other states. The tax attempts to limit the effect regional competition has on fuel tax rates by basing the tax increase on an average of the existing state taxes in Florida, Georgia, Mississippi, and Tennessee. The bill requires for the tax to be adjusted in 2019, 2023, and 2027. If the legislature decides a tax hike is not needed, it could vote to stop the adjustments. Under the proposal, counties would only be allowed to raise local gas taxes by two cents per gallon, which could only occur if voters approve a new tax hike on a ballot referendum.
The proposal also addresses another key problem with transportation funding: irresponsible government spending. In many states, gas tax dollars are spent on projects unrelated to roads, such as bike paths and museums. This proposal addresses these concerns with a companion bill, which creates a Transportation Safety Fund and limits the use of gas tax dollars for personnel, equipment purchases, or the “construction of buildings not related [to] … road and bridge construction.”
While the current proposal does make an effort to address some of the glaring problems with gas taxes, it ignores the growing evidence in support of the view gasoline taxes are ineffective, regressive, and have increasingly left transportation systems shortchanged. In recent years, the rise of fuel-efficient cars has decreased motor fuel tax coffers and disproportionately shifted the burden to low-income drivers, a group that typically owns older, less fuel-efficient vehicles. According to Americans for Prosperity, households with incomes of less than $50,000 per year currently spend more than 20 percent of their after-tax income on energy. Although gas prices are comparatively low today, there are no assurances they will remain this way, whereas the gas tax hike would be permanent.
Wendell Cox and Ronald Utt argue gas taxes have a stronger effect on lower- and middle-income families than they do on the wealthy. The tax could also cause low-income families to drive less, which could reduce employment options. Americans for Prosperity estimates lower gas prices amount to approximately $100 in additional spendable income per month for an average family, which means the recent nationwide drop in gas prices could potentially lead to an additional $100 billion of economic growth.
Critics of the gasoline tax increase proposal say legislators should not use the current dip in gasoline prices as an excuse to hike taxes, and they note a tax hike would raise prices on goods and services throughout the economy, not just on gasoline. These increased costs are passed on to consumers.
As the rise in fuel efficiency continues, motor-fuel tax revenues will continue to decline. Alabama will have to explore more modern and efficient ways to fund road construction and traffic infrastructure, which should include privatizing roads and establishing toll systems. In several cities, transportation agencies are using congestion pricing—varying toll prices based on congestion—to manage demand and limit traffic problems.
The following documents provide additional information about how motor-fuel taxes are applied and their effect on the economy.
Alternatives to the Motor Fuel Tax
http://heartland.org/policy-documents/alternatives-motor-fuel-tax
This report, prepared by the Center for Urban Studies at Portland State University and submitted to the Oregon Department of Transportation, evaluates potential alternatives to motor-fuel taxes. The report also identifies the economic and technological problems that must be addressed when designing alternative revenue sources.
Designing Alternatives to State Motor Fuel Taxes
http://heartland.org/policy-documents/designing-alternatives-state-motor-fuel-taxes
Writing in Transportation Quarterly, Anthony M. Rufolo and Robert L. Bertini consider the future of motor-fuel taxes as more fuel-efficient vehicles become available. They also report on the economic effects of road pricing as a substitute for fuel taxes.
Paying at the Pump: Gasoline Taxes in America
http://taxfoundation.org/article/paying-pump-gasoline-taxes-america
Jonathan Williams argues gas taxes can be an effective means of funding transportation improvements. In many cases, however, governments exploit the taxes for political reasons, spending them on projects unrelated to roads and other transportation improvements.
Gasoline Fuel Tax Rates as of January 2016
https://www.artba.org/economics/research/gas-tax-history/
The American Road & Transportation Builders Association provides a map documenting state gasoline tax rates, using data from state Departments of Revenue.
State Motor Fuel Taxes: January 2016
http://www.api.org/~/media/Files/Statistics/StateMotorFuel-OnePagers-January-2016.pdf
The American Petroleum Institute documents each state’s current motor-fuel taxes (both gasoline and diesel).
Reconsider the Gas Tax: Paying for What You Get
http://heartland.org/policy-documents/reconsider-gas-tax-paying-what-you-get
Jeffrey Brown of the University of California–Los Angeles notes the gasoline tax was created as a user fee to raise money for roads, but many politicians and the general public seem to have lost sight of this purpose and lump it together with other unpopular taxes. The challenge for policymakers, Brown argues, is to restore the connection in the public’s mind between the tax and the roads it should provide.
Research & Commentary: Congestion Traffic Pricing
http://heartland.org/policy-documents/research-commentary-congestion-traffic-pricing
Congestion pricing, an alternative to gasoline taxes, uses market principles to address traffic congestion. Under congestion pricing, operators of a road charge a variable price based on congestion, allowing the operator to manage demand and limit congestion. Heartland Senior Policy Analyst Matthew Glans examines several proposals for implementing pricing systems to alleviate traffic congestion.
Fuel Taxes, Tolls Pay for Only One-Third of Road Spending
http://news.heartland.org/newspaper-article/2013/02/08/fuel-taxes-tolls-pay-only-one-third-road-spending
Joseph Henchman of the Tax Foundation finds highway user taxes and fees made up just 32 percent of state and local spending on roads. Financing for the rest of the projects came out of general revenues, including federal aid.
Raising Gas Taxes Won’t Fix Our Bridges
https://heartland.org/policy-documents/raising-gas-taxes-wont-fix-our-bridges
In the aftermath of the I-35 bridge collapse in Minneapolis, Minnesota, Adrian Moore of the Reason Foundation argues increasing fuel taxes should not be the only response to state transportation funding problems. Moore wrote, “First we must examine how we spend transportation dollars now. Then we maximize the value out of those dollars. Finally, the last step is to address the need for additional revenue.”
Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this and other topics, visit the Environment & Climate News website at http://news.heartland.org/energy-and-environment, The Heartland Institute’s website at http://heartland.org, and PolicyBot, Heartland’s free online research database, at www.policybot.org.
The Heartland Institute can send an expert to your state to testify or brief your caucus, host an event in your state, or send you further information on a topic. Please don’t hesitate to contact us if we can be of assistance! If you have any questions or comments, contact Logan Pike, Heartland’s government relations manager, at [email protected] or 312/377-4000.
Matthew Glans joined the staff of The Heartland Institute in November 2007 as legislative specialist for insurance and finance.
