Bacon's Rebellion

Fiddling With the Gas Tax

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by

James A. Bacon
in

What if the state gas tax was tied to the dollar, not to the gallon? I’ve heard that this is a proposal being considered for introduction in the 2006 General Assembly.

The gas tax is currently 17.5 cents on the gallon. If it was tied to the dollar, it would roughly be a wash at 9% if gas was around $2/gallon retail price. It’s a confusing enough change, though, that it would tie tax increase and anti-tax advocates in knots arguing when and if taxes had been increased. When gas prices increased, it would hit hardest, the opposite of what we presume the average consumer would want. Still, it could be part of some grand compromise on a transportation fund lockbox.

As a practical matter, though, I wonder if it would be doable without significant investment by gasoline outlets. They have some clout with the General Assembly. It’s been a while since I worked with petroleum dispensing equipment–could current dispensing equipment be easily modified to calculate the change? Posted gas prices would look lower than they do currently because they couldn’t include the tax.

If anyone knows anything about this idea or the practicality of it, I’d hope they hit the comments section.

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5 responses to “Fiddling With the Gas Tax”

  1. Steve Haner Avatar
    Steve Haner

    They are already imposing a 2 percent sales tax on the retail price in certain parts of Northern Virignia and have been doing so for years. So it can’t be that tough, Will. Many, many other states do it as well. I think the technical problems have been addressed.

    The proposal approved in the Senate two years ago, as I recall, would have imposed the tax “at the rack” to be paid by the wholesaler/jobber — and it set the tax every 90 days on an average wholesale price. The existing tax is collected “at the rack” so the retail price just includes it.

    But just as the discussion about all this gets underway, the one nagging problem with that approach is apparent — the price goes up and the price goes down. It has dropped about a buck a gallon over the past 30-60 days. It is impossible to forecast what your revenue is likely to be.

  2. criticallythinking Avatar
    criticallythinking

    And why should the “cost” to drivers for using the roads be tied to the price of the fuel used?

    No reason. It’s just a way to raise taxes without having to vote on them.

    If the gas tax isn’t paying for the roads anymore because our cars are better, then raise the gas tax by vote. If it makes sense, a smart person should be able to explain it.

    Hey, we just had an election. Wish one of the candidates who wanted more money had the ability to explain this during the campaign so we could vote on it?

    I liked how Kaine’s campaign manager thought we could “lock up” that trust fund lickety-split now that the election is over, so his candidate can raise the gas tax but keep his campaign “promise” not to raise the tax until we can “lock up” that trust fund — something he kept saying would take a constitutional amendment.

    How about a mileage tax? Get rid of the gas tax, and instead require car registration priced based on the number of miles you drive, and the weight of your car. Those two factors at least have some gross level of correlation with the cost to maintain, and need to build, new roads.

    In Oregon, they slapped a registration surcharge on Hybrid cars, because those drivers would get “too good” a gas mileage, and wouldn’t pay their fair share for the roads.

  3. Anonymous Avatar
    Anonymous

    Dear Critically,

    Kaine has been talking about a “lock box” for more than a year. And he wanted a constitutional amendment, but during the campaign said he might be willing to accept an alternative that had the same effect.

  4. Matt Avatar
    Matt

    Here is an idea. Take the different classes of cars. Edmunds.com would be good. So the categories would be small car, midsize, large, luxury, small suv, large suv, truck. Then, for each category the average MPG would be calculated. When somone buys a car they would be charged on a sliding scale by where the individual model compared to the average for the class of car. For example if you buy a XYZ car that has 32 MPG and the average for the class is 35 MPG you would have to pay a certain amount. The scale is very debatable how about $500 per amount away form the average. So you would pay an extra 1500 to buy XYZ car. I haven’t thought about the enforcement costs for this and it would propably hurt certain auto makers. Just a thought

  5. Ray Hyde Avatar
    Ray Hyde

    Some people think that reducing travel and VMT is a good thing, and it probably is if you only consider negative externalites like traffic deaths, environmental damage, and balance of trade deficits.

    The best way to reduce the amount of travel is to increase its cost and a gas tax based on the dollar does that very effectively. Because, all else being equal, heavier vehicles use more fuel, they will pay more in road taxes.

    It is a user fee that affects all but which you can take steps to reduce. Location specific user fees affect a much smaller body of travelers, raise less money, and that money is likely to have to stay local, reducing the options for other travel enhancements.

    From the government’s perspective, the higher the price the more you want to introduce curbs, which a dollar based gas tax does very effectively. It also encourages the use of alternative fuels, and it reduces wild swings in retail prices.

    Collecting the money is no different from collecting any other sales tax.

    Any attempt to diminish auto use will be opposite from what consumers want. We can try to reduce usage through land use reforms, but academics tell us we should not expect this to work effectively: the best method to reduce usage is to raise the price. The fairest method is to do it in a way that affects everyone equally.

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