Gas Tax Increase

State officials in Utah are looking at a tax increase to pay for transportation projects. Instead of a set 24.5 cents per gallon Utahns would pay a percentage of the price at the pump. An alternate would be an increase of 1/10 of a cent in the state sales tax toward paying for the nearly $4 billion in road projects that have been suspended. Projects like the Mountain View Corridor connecting Salt Lake and Utah counties and 20 miles of I-15 reconstruction in Utah County.

Drivers Opposed

Almost all of the commenters to the Deseret News story “As gas prices plunge, gas taxes may rise” were opposed to any tax increase. One rickety respondent felt that “the Legislature should implement congestion pricing instead.” Regular readers of my blog already know I am opposed to a congestion tax. However David Miller has reasonable arguments in favor of congestion pricing.

How Does A Percentage Gas Tax Work?

I can make a few guesses. The idea is that as the price of gas rises, the gas tax rises at a set percentage. Suppose if the price of gas is $1.50 a gallon (which it soon will be), the state gas tax is 24.5 cents and the percentage the governor takes is 16.33%. If the price of gas rises to $3.00 a gallon then the percentage to the state falls to 8.17%. If Utah wanted to maintain the percentage 16.33%  tax when gas costs $3.00 a gallon then the tax would rise to 49 cents. Gas at $4.00 a gallon would need a tax of 65.3 cents.

The attraction of this method is that it counters the problem of rising gas prices causing reduced consumption that cuts money to fund road projects. The negative for drivers is that when gas prices increase you get beat up at the pump by the oil sheiks and the governor.

Gas Tax Base Rate

As well as a percentage tax rate the state would need a base gas tax rate at which the percentage switches to a fixed amount. For example, a gas tax rate of 16.33% could have a base set at $1.50 a gallon so that if prices fall below that amount a fixed gas tax of 24.5 cents would kick in until prices rose above $1.50 a gallon. One would hope that there would also be a maximum amount of gas tax per gallon set but I wouldn’t be holding your breath on that one.

How I See It

I think that it is very appropriate to raise funds for road projects with a gas tax. Other sources of funds that are currently used are sales taxes from the state’s general fund, vehicle registration fees, and federal funds. I would like to see the funding from the use of sales taxes reduced and the slack picked up by increases in gas taxes. This would alleviate the funding shortfalls that come from reduced sales tax collections.

I am not in favor of a percentage based gas tax. When gas is rising in price the last thing the government should be doing is helping to raise the price even higher. If funding is needed for road projects, increase the gas tax. It is probably one of the fairest taxes around, if there is such a thing.

Update

4 December 2008 — Deseret News

The governor scrapped — at least for now — the suggestion that the gas tax be shifted from a flat 24.5 cents a gallon to a percentage of the sales price, but said he’d be supportive of a similar proposal from lawmakers this session.