Research & Commentary: New Jersey Motor Fuel Tax Increase

Published December 8, 2014

Legislators in New Jersey are considering a major gas tax hike, which would move the state from having one of the lowest gas taxes in the country to one of the highest. In an effort to stabilize the state’s Transportation Trust Fund, Assemblyman John Wisniewski (D) introduced a bill to increase the state’s 14.5 cent gas tax, which has remained unchanged since 1988, by at least 25 cents a gallon. According to the Star-Ledger, the tax hike would cost the average New Jersey driver approximately 80 cents a day, or $292 a year. Wisniewski claims the tax hike will raise an additional $1.25 billion a year for the New Jersey Transportation Trust Fund.

According to the American Society of Civil Engineers, 66 percent of New Jersey’s roads were in poor or mediocre condition and 36 percent of the state’s bridges were structurally deficient or obsolete in 2013. Maintaining the state’s roads and bridges has been difficult, with funding being a recurring problem. The Reason Foundation states New Jersey’s highway system is the nation’s most expensive to operate and maintain. New Jersey’s highway system is also among the least cost-effective in the country (48th nationwide), with the roads being in poor condition given their high costs.

Wisniewski’s tax hike proposal would increase the annual minimum amount dedicated to the trust fund from $200 million to $1.45 billion. According to Planetizen, this gas tax increase of $1.25 billion would be the highest increase of any state and would move New Jersey from the second-lowest gas tax to the eighth-highest.

In recent years, the rise of fuel-efficient cars has decreased motor fuel tax coffers and disproportionately shifted the burden to low-income drivers, who typically own older, less fuel-efficient vehicles. In addition, governments have increasingly diverted funds from this tax away from its intended purpose in order to balance budgets or fund unrelated projects.

The U.S. federal excise tax is 18.4 cents per gallon of gasoline. The average state gasoline excise tax is 20.5 cents per gallon, according to the American Petroleum Institute. In addition, other taxes and fees imposed on gasoline include sales taxes, gross receipts taxes, oil inspection fees, county and local taxes, and miscellaneous environmental fees, collectively averaging 10.39 cents per gallon, resulting in a volume-weighted average state and local tax of 30.88 cents per gallon.

Thus federal, state, and local governments collect, on average, 49.28 cents of taxes per gallon at the pump. For comparison, ExxonMobil, a company responsible for the exploration, refining, distribution, and marketing of gasoline, gains a profit of only about $0.07 per gallon of gasoline it sells.

Rising fuel efficiency is a good thing if it is not mandated by government, but as efficiency improves, motor fuel tax revenues will continue to decline. States will have to explore more modern and efficient ways to fund road construction and traffic infrastructure. These 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 articles examine motor fuel taxes and their economic effects.

Alternatives to the Motor Fuel Tax
The Center for Urban Studies at Portland State University evaluates the potential for alternatives to motor fuel taxes. The report also analyzes the economic and technological problems those designing alternative revenue sources must address. 

Designing Alternatives to 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, and they report on the economic effects of increased use of road pricing as a substitute for fuel taxes. 

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 Institute 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
Joseph Henchman of the Tax Foundation examines how states acquire transportation funds, and he 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
In the aftermath of the I-35 bridge collapse in Minneapolis, Adrian Moore of the Reason Foundation argues increasing fuel taxes should not be the only response to state transportation funding problems. He writes, “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.” 

Five Myths about Your Gasoline Taxes
Shin-pei Tsay and Deborah Gordon of the Leadership Initiative for Transportation Solvency at the Carnegie Endowment for International Peace write for CNN about what they see as several misconceptions about gasoline taxes, arguing the gas tax is a good investment. 

Rethinking Maryland’s Proposed Gas Tax Increase
Wendell Cox and Ronald Utt examine the misallocation of more than half of Maryland’s transportation funds, spent on transit instead of roads, and they document the inequities a fuel tax increase creates among households of different income levels. 

Tying the Gas Tax to Inflation: Not a Good Idea
Kyle Pomerleau of Americans for Tax Reform (ATR) discusses the efforts in some states to tie the gasoline tax rate to inflation. ATR argues indexing gasoline taxes removes accountability and increases gas prices considerably as oil prices increase. 

Gasoline Taxes: January 2013
The American Petroleum Institute documents the 2013 motor fuel taxes (both gasoline and diesel) of each state. 

Paying at the Pump: Gasoline Taxes in 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 other than their intended uses. 

Reconsider the Gas Tax: Paying for 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 that purpose and lump it together with other unpopular taxes. The challenge for policymakers, he argues, is to restore the connection in the public’s mind between the tax and the roads it provides, as well as to reassert the gasoline tax’s original rationale as a user fee.

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 subject, visit Budget & Tax News at, The Heartland Institute’s website at, and PolicyBot, Heartland’s free online research database at 

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