Now that the Legislature has overridden the governor’s veto of the first gas tax increase in 20 years, it is a good time to consider if we can do things better in the future.
Is there any better alternative to a so-many-cents-per-gallon tax earmarked for highway construction and maintenance? The answer is ‘not yet,’ but perhaps there will be in a decade or two.
We tax gasoline by the gallon at the federal and state levels because it provides at least a rough tie between how much people use roads and how much they pay. Moreover, as traffic increases, so do revenues. Fuel taxes also provide a stream of revenue in good fiscal times as well as bad that is insulated from short-term fights about general-fund budgets.
The problem with a specific-amount tax is that it does not respond to changes in transportation-related cost levels. Consumer prices have increased about 75 percent since Minnesota’s tax was last increased, in 1988. The cost of diesel fuel, a major operating cost for MnDOT and for contractors, is nearly three times as high. The cost of structural steel for bridges and reinforcing steel for concrete is 2.5 times what it was in 1988. Asphalt, which had been quite stable through the 1990s, has doubled in price in the past six years.
Yes, taxable fuel sales have increased along with the population, so revenues have increased. But some of the quantity increase came from the popularity of low-mileage vehicles, such as SUVs, in a time of low gasoline prices. Now, higher fuel prices are pushing fuel use per mile back down.
Any way you slice it, by 2008, the amount of road work one could do with the tax per gallon or per mile driven is less than half of what it was two decades ago.
Percentage taxes such as sales taxes raise revenues as fuel prices increase. But fuel costs do not march in step with either general price levels or transportation construction costs. In the 1970s, oil prices grew substantially faster than the Consumer Price Index. In the 1990s, they grew more slowly. Since 2001, they again have outpaced general prices.
A percentage tax on fuel purchases would have increased transportation funding dramatically in the past half-decade, probably faster than needed road and bridge work.
At some time in the future, there will be technology to record the time of travel, weight, speed and total miles driven for all vehicles, including family passenger ones. It will be possible to charge owners a fee closely related to actual highway capacity use and damage caused. It may also feel like Big Brother is in the back seat, but it will be a significant step closer to charging for true benefits received.
In the meantime, there is no good alternative to elected officials making the hard determination whether people are better off having more dollars in their pockets or having better roads on which to drive.
© 2008 Edward Lotterman
Chanarambie Consulting, Inc.