Testimony Before the Maryland House Committee on Ways and Means on House Bill 144 Relating to Motor Fuel Tax Rates and the Consumer Price Index
The Heartland Institute
February 10, 2022
Chairwoman Atterbeary and Members of the Committee,
Thank you for holding a hearing on House Bill 144. Legislation that would repeal a requirement that certain motor fuel tax rates be adjusted in future years based on growth in the Consumer Price Index (CPI) for all urban consumers.
Switching from the CPI standard to concrete metrics for any fuel tax adjustments allows citizens of the Old Line State more transparency when it comes to their various fuel tax rates. Predicting what fuel tax rates the Comptroller will determine based on the Bureau of Labor Statistics is more work than any citizen should have to do. Consequently, HB 114 would streamline the ability of citizens to understand fuel tax rates at the state level without any surprises.
This legislation is a step in the right direction towards fiscal responsibility and transparency when it comes to changes in fuel taxes. HB 144 stands in contrast to other bills under consideration in state legislatures that aim to flippantly increase fuel taxes. Like all taxes, the burden of fuel taxes are ultimately borne by consumers. Moreover, this comes at a time when the national average for a gallon of gas is at its highest since 2014.
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.
Furthermore, if states begin to follow in the footsteps of California Gov. Gavin Newsom, we are likely to see a phasing-out of the sale of gasoline-powered cars in the future.
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 the COVID-19 pandemic.
Additionally, fuel taxes are highly regressive and carry with them a myriad of 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 higher prices on goods and services will be the result.
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 cannot afford more hurdles. According to Wallethub, 87 percent of small business owners are struggling due to the ongoing 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 marginally able to pay their bills 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. Such is 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 about 50 percent over the past year, according to The Wall Street Journal. There could not be a more inconvenient time to impose any changes on fuel taxes to Maryland consumers who are currently paying an average of $3.445 for regular-grade gasoline. In comparison, the average price for regular one year ago was $2.472, according to AAA Gas Prices.
Overall, as you all consider HB 144, I would implore you all to see the evident benefit of making fuel tax increases as transparent as possible.
Thank you for your time today.