Rhode Island lawmakers are considering amending the state’s tax code relating to motor and other vehicles with Senate Bill 2350. If passed, this legislation would create a moratorium on the payment of the state fuel tax until December 31, 2022.
Senate Bill 2350 would provide some much-needed relief for residents of the Ocean State at a time when the national average for a gallon of gas is at an eight-year high and national inflation is at a 40-year high.
Historically, gasoline taxes have been inherently unreliable sources of funding when it comes to state roads, maintenance, and other transportation infrastructure projects. This is partly attributable to the rise of more fuel-efficient vehicles. According to The Electric Vehicle World Sales Database, sales of electric vehicles have been consistently increasing since 2011.
In 2015, Daniel Vock, writing for Governing, examined state gasoline tax data reported to the U.S. Census Bureau and discovered two-thirds of state-imposed fuel taxes failed to keep state transportation budgets afloat amid inflation. Moreover, the COVID-19 pandemic has added an unforeseen layer to the complexities and shortcomings of using gasoline taxes to subsidize state-run transportation programs and projects.
The stark decline in driving that accompanied lockdown orders drastically reduced gasoline tax revenue for state and local governments, highlighting the fact that gas taxes are no longer viable sources for state infrastructure and transportation funding. According to the American Road and Transportation Builders Association, more than $8.5 billion in planned projects across 14 states were canceled or delayed because of budgetary shortcomings due to COVID-19.
Additionally, fuel taxes are highly regressive and carry with them myriad economic consequences, including creating new direct-to-consumer costs. As a function of corporate finance, large-scale corporations and transit entities will see their usual budget allocation for fuel fall short with increasing prices, thus resulting in higher prices on goods and services.
As is the case with many top-down taxes, an increase in gasoline taxes will hit small business owners harder at a time when small businesses do not need any more hurdles. According to Wallethub, 87 percent of small business owners are struggling due to the COVID-19 pandemic.
In a Maryland Public Policy Institute study, Wendell Cox and Ronald Utt argue that gas taxes have a significantly greater negative effect on the budget of lower- and middle-income families than they do for wealthier households. Gasoline consumption is inelastic for most Americans, meaning those who are already having difficulty making bill payments face an increased financial burden due to an increase in fuel taxes.
Moreover, the revenue from fuel taxes is not always allocated to transportation upgrades. The latest example of this took place in Pennsylvania, where gas tax revenue intended to fund bridge repairs went to the state police instead. The Keystone State saw $802 million in gas tax revenue allocated toward police funding. While police funding is paramount to a safe society, there is no way for constituents to be sure that gas tax funding goes towards the betterment of state transportation infrastructure.
Furthermore, as more electric and fuel-efficient vehicles enter the market, policymakers must consider more modern and effective ways to fund road construction and other state transportation infrastructure projects. This is likely why many states have turned to privatizing roads and establishing toll systems as ways to improve their roadways.
Amid a time when U.S. inflation has hit a 40-year high, U.S. gasoline prices have climbed 58 percent over the past year, according to The Wall Street Journal. There could not be a more ill-timed proposal to levy higher taxes on Rhode Island consumers who are currently paying an average of $4.434 per gallon for regular-grade gasoline, as compared to $3.033 one year ago, according to AAA Gas Prices.
Overall, as lawmakers in Rhode Island consider SB 2305, they should see the evident benefits to providing this gas tax moratorium. This will provide a measure of relief that citizens desperately need during a time of intense economic pressure.
The following articles provide more information about how motor-fuel taxes are applied and their subsequent effects on the economy.
Raising Gas Taxes Won’t Fix Our Bridges
In this paper, 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.”
Paying at the Pump: Gasoline Taxes in America
In this paper from the Tax Foundation, 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 projects.
Alternatives to the 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.
State Motor Fuel Taxes
The American Petroleum Institute documents each state’s current motor-fuel taxes (both gasoline and diesel).
Policy Tip Sheet: Gas Taxes are not the Long-Term Solution to Funding Transportation
In this Policy Tip Sheet, Matthew Glans examines gasoline taxes, how they have become less effective over time, and why states can no longer rely on them to fund state transportation projects.
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 Budget & Tax News website, The Heartland Institute’s website, our Consumer Freedom Lounge, and PolicyBot, Heartland’s free online research database.
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