A new report released by the Wisconsin Legislative Fiscal Bureau (LFB) has convinced several legislators to push for new tax hikes to increase transportation funding. The memo released by LFB concluded Wisconsin would need to generate $939 million for the 2017–19 budget to maintain the level of funding approved in the 2015–17 budget. State Rep. John Nygren (R-Marinette), who requested the study, argues all options need to be considered to cover the shortfall in the state’s transportation fund, even a gas tax increase.
The suggestion of using the gas tax to cover the budget shortfall has drawn significant criticism, including from Gov. Scott Walker (R). According to the Tax Foundation, the current gas tax is 32.9 cents-per-gallon, which is the 12th-highest rate in the country and the highest one in the Midwest. Americans for Prosperity (AFP) argues using gas taxes alone to cover the gap would be excessive. According to AFP, it would require a “50% increase to Wisconsin’s current 32.90¢ gas tax to create $939 million in new revenues – meaning the state’s rate would be 49.35¢ per gallon and rank it as the second-highest in the nation.”
Increases to so-called “wheel taxes” across the state are also being proposed. Wisconsin law allows towns, villages, cities, and counties to add an additional annual municipal or county vehicle registration fee for motor vehicles, in addition to the regular annual registration fee paid to the state. The most recent proposed wheel tax increase was offered in Milwaukee County, where the county board is considering an increase as high as $60. The City of Sheboygan approved a $20 wheel tax in 2015.
Wheel taxes are really phantom taxes disguised as a fee. Several cities and counties have begun to debate adding these new fees to fund local transportation projects. According to the National Conference of State Legislatures, Wisconsin’s registration fees are middle-of-the-road compared to neighboring states, but its title fee, currently $69.50, is the second-highest in the Midwest, behind only Illinois’ fee, which is $95.
Proposals to increase the gas tax ignore the growing evidence that gasoline taxes are an ineffective, regressive tax which has 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.
The fact gas taxes have not increased over time does not mean they need to be increased now. Layering county and local wheel fees on top of state fees creates an unnecessary burden on all Wisconsinites, but especially on the state’s poorest people. Gas taxes are a regressive tax hike that Wendell Cox and Ronald Utt argue has a stronger effect on lower- and middle-income families than it does 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.
It is not appropriate to add the burden of additional tax or fee increases on households that are already cash-strapped. A tax hike would raise prices on goods and services throughout the economy, not just on gasoline, because virtually all consumer goods are transported using gasoline-powered transportation. Businesses will simply pass the added costs on to consumers.
Wisconsin legislators need to explore more modern and efficient ways to fund road construction and traffic infrastructure, such as 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 the impact they have on states’ economies.
Alternatives to the Motor Fuel Tax
https://heartland.org/publications-resources/publications/alternatives-to-the-motor-fuel-tax?source=policybot
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
https://heartland.org/publications-resources/publications/designing-alternatives-to-state–motor-fuel-taxes?source=policybot
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: April 2016
http://www.api.org/~/media/Files/Statistics/StateMotorFuel-OnePagers-July-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
https://heartland.org/publications-resources/publications/reconsider-the-gas-tax-paying-for-what-you-get?source=policybot
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
https://heartland.org/publications-resources/publications/research–commentary-congestion-traffic-pricing?source=policybot
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
https://heartland.org/news-opinion/news/fuel-taxes-tolls-pay-for-only-one-third-of-road-spending?source=policybot
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/publications-resources/publications/raising-gas-taxes–wont-fix-our-bridges?source=policybot
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 https://heartland.org/publications-resources/newsletters/environment-climate-news, 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 Nathan Makla, 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.
