A tax on gasoline would seem to be a simple thing. You buy a gallon of gas, and you pay a certain amount of state and federal taxes on the purchase.
But in North Carolina, understanding the gas tax and a proposal to change it is akin to solving an algebra problem in a college math course. The reason the gas tax is complicated is because politics complicates it. Lawmakers don’t like to raise taxes, and over the years there have been all sorts of formulas that make it harder for consumers to tell what they are paying.
This week that dubious tradition continued. Senate Republicans approved a bill Thursday to change the gas-tax formula and called it a tax cut. Actually, it’s a 2.5-cent reduction in the current state gas tax of 37.5 cents, but it also eliminates a bigger drop to around 30 cents that was set to take effect in July when the gas tax goes through its recalculation every six months. The reduction was coming because a portion of the tax is tied to the wholesale price of gasoline, which has been decreasing sharply.
The virtue of the proposed change is that it would eliminate fluctuations in gas-tax revenue. It drops the tax 2.5 cents starting March 1 but sets that 35-cent-per-gallon mark as a minimum or floor. So no matter what happens to wholesale gas prices, the state will always be able to count on at least 35 cents per gallon coming in.
A stable base tax
Setting a floor is a sensible concept. The state needs to be able to plan long-term for transportation projects, and it needs a reliable and consistent source of revenue to fund the work. But the proposed change passed by the state Senate on Thursday has some problems.
For one, this change shouldn’t be pitched as “tax relief” as Senate leader Phil Berger has declared. The legislature’s fiscal review projects the new formula could push the gas tax as high as 41 cents per gallon and generate $237 million more in the next fiscal year, rising to $352 million in 2018-19. It could cost consumers $1.2 billion over the next four years.
As Sen. Ben Clark, D-Hoke, said during floor debate, “We must be clear to our constituents. We must be above board. This is a tax increase, pure and simple.”
A fairness issue
And it may be an increase that’s unfair. The GOP’s other tax changes have already pushed the tax burden downward. This will increase a regressive tax. Lawmakers could soften the blow by raising more transportation funds from other sources.
Secondly, why cut the sales tax 2.5 cents effective March 1? That cut will cost the state $33 million and is expected to require the layoff of 500 Department of Transportation employees. If the state is short of funding for transportation needs, why give a temporary tax reduction that’s unlikely to be noticed at the pump?
Finally, finagling with the gas-tax formula should be part of a broader approach to stabilizing transportation funding. On the federal level, U.S. Secretary of Transportation Anthony Foxx called on Congress to fix the broken system for funding national transportation. The Highway Trust Fund is depleted, and the federal gas tax hasn’t increased since 1993.
States – where transportation projects are funded by a variety of gas taxes and fees – are looking at making motorists pay in relation to how much they drive. From 2008 through 2014, at least 19 states considered 55 legislative measures related to mileage-based fees. In July, Oregon will roll out a pilot program in which 5,000 motorists have opted to pay a per-mileage fee rather than the state’s gas tax.
North Carolina should collect what it needs to provide a high-quality transportation system. In that respect, a floor on the gas tax makes sense. But it shouldn’t be complicated by “tax-relief” spin, and it should be part of a broader solution that asks those who use the system more to pay more.