Title: State Gasoline Taxes: Built to Fail, But Fixable – ITEP
Headings: State Gasoline Taxes: Built to Fail, But Fixable
State Gasoline Taxes: Built to Fail, But Fixable
How Gas Taxes Work
A Vital Transportation Revenue Source
Challenges Confronting State Gas Taxes
Consequences of Inaction
Recommendations for Reform
Recent Progress
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Content: A Vital Transportation Revenue Source
State gas taxes are the single most important source of transportation revenue under the control of state lawmakers. Roughly 30 percent of state own-source highway funding comes from state gas taxes. Many states use gas tax revenues for mass transit projects as well, under the sensible assumption that highway users benefit from the congestion-reducing effects of transit. But while gas taxes remain a vital transportation revenue source today, their relative contribution to state transportation budgets is actually declining. Taxes and fees paid by drivers (the most significant of which is the gas tax) now make up a smaller share of total highway funding than at any point since the Interstate Highway System was created in 1957. But this shift in transportation finance did not come about because of a conscious change in policy. Instead, it is due to flaws in the design of the gas tax that have left it incapable of handling the challenges outlined below. Challenges Confronting State Gas Taxes
State gas taxes, as currently designed, are an unsustainable revenue source. This means that over time, the revenue generated by state gas taxes tends to fall increasingly short of meeting state infrastructure needs. The most unsustainable type of gas tax is the fixed-rate tax, where the tax rate remains unchanged year after year.