Study: 'Good time' for gas tax hikes

Study: 'Good time' for gas tax hikes
© Greg Nash

Low fuel prices make this a "good time" to increase gas taxes in the nation to help pay for transportation projects, according to a newly released study. 

The study, from Ball State University's Center for Business and Economic Research, argues that U.S. fuel prices are likely to remain low for the foreseeable future, which should help to increase the political viability of gas tax hikes in states like its native Indiana. 

"Gasoline prices are now very low and most estimates suggest that they will stay low for a lengthy period of time," the study says.

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"The cost of driving 100 miles is now half what it was in the 1930s and, according to generally accepted economic models, an increase in gasoline taxes of five cents will have no appreciable impact on key measures of employment or GDP in Indiana," the researchers continued. 

Lawmakers in Indiana have been considering a proposal that would increase the state’s nearly 30 cents-per-gallon gas tax by 4 cents, according to a report from the Indianapolis Star. 

A new fuel levy would be collected on top of an 18.4 cents per gallon federal gas tax. 

The American Petroleum Institute says the gas tax increase will bring the total amount of taxes that drivers in Indiana pay at the pump to more than 52 cents per gallon. 

The author of the study said drivers in the Hoosier State will be able to accept a gas tax hike with prices at the pump so low, like their counterparts in other states that have done in other states that enacted fuel levy increases in recent years. 

“Current low prices, increasing fuel efficiency of our vehicles and long-term decline in real tax revenues suggest this is a good time to enact such an increase,” said Michael Hicks, director of the Center for Business and Economic Research at Ball State University. “More importantly, higher tax rates are not necessarily viewed negatively by businesses and residents.” 

Indiana is the latest state to consider increasing its own gas taxes in recent years as Congress has resisted a federal hike. Six states implemented such increases on July 1 of last year. 

Transportation advocates had pushed lawmakers to increase the federal gas tax during a debate about a multiyear highway funding bill last year, but lawmakers opted instead to turn to other areas of the federal budget to pay for a five-year, $305 billion highway bill

Supporters of increasing the gas tax pointing to the willingness of states like Indiana to consider raising their own fuel levies as evidence that a national hike would be politically palatable now.

President Obama has suggested a $10-per-barrel tax on oil distributors, but Republicans have scoffed at the proposal.  

Conservative groups in Washington have made clear that they would consider a federal increase at either the pump or on the wholesale end to be a tax hike, however, and Republican lawmakers ruled it out even as they were searching for ways to pay for a new highway bill.

The national gas tax has been the traditional source of transportation funding since its inception in the 1930s. The tax has not been increased since 1993, however, and improved fuel efficiency has sapped its purchasing power. 

The federal government typically spends about $50 billion per year on transportation projects, but the gas tax only brings in approximately $34 billion annually at its current rate. 

Lawmakers turned to other areas of the federal budget to close the $16 billion per year gap last year, but transportation advocates have said the federal gas tax will have to eventually be increased or replaced with a more sustainable funding source to keep pace with rising costs for infrastructure projects. 

The Congressional Budget Office has projected that it will take about $100 billion, in addition to the annual gas tax receipts, to pay for a six-year transportation funding bill. 

Lawmakers relied on a package of approximately $70 billion of offsets from other areas of the federal budget to help pay for the recently completely highway bill, which lasts until 2021. 

The full report on the viability of gas tax increases can be read here.