Is the federal gas tax due for a hike? Wouldn’t it hit poor Americans the hardest?
The account that pays for the federal government’s share of improvements to the nation’s highway system is refilled until next May, and Maine and other states can continue highway improvements with peace of mind that the feds will chip in their share for bridge replacements, repaving and more.
But Congress solved that problem only temporarily, transferring $10.8 billion to the Highway Trust Fund to keep it above water until May of next year. At that point, the House and Senate can agree to another emergency patch — they’ve patched the highway fund with more than $50 billion in emergency transfers since 2008 — or they can settle on a more lasting solution.
While many politicians can’t stomach the idea of a gas tax hike, there’s at least widespread — though not universal — acknowledgement the nation’s 18.4-cent-per-gallon gas tax hasn’t kept pace with the costs involved with improving highway infrastructure.
A long-term solution that keeps highway funding intact would involve touching the gas tax Congress has resisted raising since 1993. At least for the short term, one solution that doesn’t shake up the way we fund highway improvements would be to raise the gas tax and index it to inflation — proposed this spring by Sens. Bob Corker, R-Tennessee, and Chris Murphy, D-Connecticut.
Consumption taxes and low incomes
There is no getting around the fact that a tax based on consumption hits those with lower incomes hardest. At least up front, everybody pays the same rate for goods and services, regardless of income.
In 2009, the bottom 20 percent of Maine taxpayers paid out 3.5 percent of their income in state excise taxes — taxes levied on specific products, such as gasoline, tobacco and alcohol. The top 10 percent paid 0.3 percent, according to Maine Revenue Services. The distribution of Maine’s general sales and use tax was similar: 3.7 percent of income for the bottom 20 percent and 1.3 percent for the top 10 percent.
On the other hand, with the Maine individual income tax, the bottom 20 percent in 2009 owed 0.1 percent of their income, while the top 10 percent of Maine taxpayers owed 4.8 percent.
Economists for decades have looked into the impact of the gas tax on families across the income spectrum. In every study, the basic relationship is the same: Those on the lower end of the income spectrum feel the tax more. But it’s not that black and white.
A regressive tax?
In 1986, a U.S. taxpayer in the bottom 10th of income earners would have spent 11.44 percent of his income on gasoline. The higher the taxpayer’s income, the smaller the percentage he or she would pay for gas. The top 10 percent of taxpayers spent 2.4 percent of their income on gasoline, according to a paper by MIT economist James Poterba in 1991.
But economists in recent decades who have looked into the effect of the gas tax on different income groups have found that spending on gasoline hits the lower-middle class hardest, not those with the lowest incomes.
To complicate matters, others have found the gas tax isn’t as hard on those with low incomes.
To start, gas taxes don’t make up an overwhelming share of the price of a gallon of gas. In 2010, taxes — state and federal — accounted for 15 percent, according to the Federal Highway Administration. For the average U.S. family, a 25-cent gas tax increase would work out to about a $30 impact each year, economists Antonio Bento, Lawrence Goulder, Mark Jacobsen and Roger von Haefen calculated in a 2009 paper for the American Economic Review.
But families with lower incomes tend to drive fewer miles than their higher income counterparts — about 4,000 miles in a year for the bottom 10th of taxpayers, compared with more than 35,000 for the top 10th. Those who buy less gasoline will pay less in gas tax.
The gas tax also affects drivers’ behavior. A 2013 paper by economists Shanjun Li, Joshua Linn and Erich Muehlegger found that consumers are more sensitive to a gas tax increase than they are to a routine increase in the price of gas. The result? A 5-cent gas tax increase would reduce overall gasoline consumption by 0.86 percent.
A break for drivers
As gas prices have spiked over time, political leaders from both parties have entertained gas tax holidays as a way to give drivers a break at the pump — especially drivers with limited budgets.
But if policymakers want the benefits to accrue to low-income drivers, there are other tools that offer a more certain way of targeting benefits to them.
Through a gas tax holiday, there is no assurance the drivers will see the full benefit, since there is no guarantee retailers will pass on the full discount. Beyond that, there are programs, such as the Earned Income Tax Credit and the Low Income Heating Assistance Program, that better target those with low incomes than a general suspension of the gas tax.
If policymakers want a way to counter the gas tax’s regressive nature, they have options.
Those options could become more relevant in the future if policymakers are serious about bringing in sufficient funds for highway improvements and ensuring a progressive tax code.
Americans are driving fewer miles today, and they’re driving more fuel-efficient cars. Autos will only become more efficient, and more vehicles won’t depend on gasoline at all in the future. As a result, the gas tax will no longer be an effective way for states and the federal government to collect revenue to maintain the nation’s roads.
The number of highway miles with tolls has increased in recent decades. And Oregon — the state that pioneered the gas tax — is piloting a per-mile tax on vehicles as a way to collect revenues for its roads.
A system in which the user pays to maintain the roads he or she uses could dominate the future, and policymakers who want a progressive tax code will need to find other ways to deliver it.
Matthew Stone is BDN opinion page editor.