What you need to know about state and federal gas taxes

The main source of transportation funding — federal and state gas taxes — has not kept up with the need

IndyStar.com
By Maureen Groppe, Star Washington Bureau
9/7/15

WASHINGTON – Federal and state policymakers haven’t figured out how to deal with the fact that the main source of transportation funding — federal and state gas taxes — has not kept up with the need. The details:

What is the federal gas tax?

The federal government imposes an 18.4 cents-per-gallon tax on gasoline and a 24.4 cents-per-gallon tax on diesel fuel. The taxes are the primary source of revenues for the Highway Trust Fund, which distributes money to states for highway and transit programs. The fund has provided about a quarter of the total amount spent by all levels of government on highway and transit programs in recent years.

How much does this cost motorists?

The average Hoosier driver pays $110 in federal gas taxes each year, according to the Build Indiana Council, a coalition of construction trade associations. The American Road & Transportation Builders Association estimates the tax accounts for about 1.2 percent of the annual cost of owning and operating a car.

What is the problem with the Highway Trust Fund?

Although the tax rates haven’t changed since 1993, revenues continued to increase for years as the number of miles traveled by motorists increased. But gas consumption started declining about 10 years ago as gas mileage improved and people started driving less. Congress has shored up the trust fund with general fund dollars since 2008. But because of inflation, the money sent to states doesn’t have the same purchasing power as it did in 1993.

The gas tax would be 30 cents a gallon, and the diesel tax would be 40 cents.

Does Indiana get its fair share of the federal gas tax?

Indiana for years was a “donor” state, meaning it received less funding from the Highway Trust Fund than the federal government collected from within Indiana’s borders from the tax. But because the fund has been supplemented in recent years with general fund dollars, Indiana has been receiving more than motorists have been paying. For example, Indiana paid $851.5 million into the trust fund in 2013 and got $946.7 million back, according to the Federal Highway Administration. Still, the proportion of funding received compared with taxes collected is lower than most states.

How much more is needed?

The gas tax would need to be increased about 14 cents to maintain spending at current levels over the next decade. If lawmakers prefer to cut spending to match gas tax revenues, highway funding would have to be reduced about 30 percent. Continuing to supplement the trust fund with general fund revenues would require transferring about as much as the government spends running the Social Security Administration.

Is the federal government likely to raise the gas tax?

President Barack Obama opposes raising the tax, as do GOP congressional leaders. Instead, lawmakers have debated short-term funding options, such as changing the way the U.S. taxes multinational firms, selling a portion of the Strategic Petroleum Reserve, reducing dividends paid by the Federal Reserve to member banks, using private debt collectors to go after overdue tax payments and revoking passports for delinquent taxpayers.

What are states doing?

About a quarter of states have raised or reformed their gas taxes since 2013, according to the Pew Fiscal Federalism Initiative.

What is Indiana doing?

State lawmakers directed a study of the options for raising new revenue. The report is expected this fall.

How much is the state gas tax?

Indiana collects 18 cents a gallon on gasoline and 16 cents on diesel, rates unchanged since 2003. In addition, 1 percent of the revenue generated by the state’s sales tax is funneled to transportation, totaling about $126 a year in gas-related taxes for the average Hoosier driver, according to the Build Indiana Council. The Indiana Department of Transportation estimates the average Hoosier pays about $18 a month in federal and state gas taxes, registration and other fees, compared with $50 a month for Internet service and $60 a month for cable TV.

What’s the problem at the state level?

Indiana faces the same erosion in its gas tax revenues as the federal government because of increased fuel efficiency, reduced miles traveled and a decline in the buying power of the revenues because of inflation.

How much of a funding gap exists?

If the state’s taxes had kept pace with inflation — raising the gas tax to 23 cents — Indiana would be collecting almost half of the $1 billion annual shortfall that the Build Indiana Council estimates is needed to maintain the state’s roads and bridges. That doesn’t include new projects the state deems a priority, such as completing the Indianapolis-Evansville section of I-69, adding lanes to I-65 and I-70, and building an outer-loop freeway around Indianapolis.

What’s the condition of Indiana’s infrastructure?

An estimated 21 percent of Indiana’s highways need resurfacing or restructuring, compared with 20 percent nationally, according to the American Road & Transportation Builders Association. About 22 percent of Indiana bridges are structurally deficient or functionally obsolete, compared with 24 percent nationally.

Are there other funding options besides raising the gas tax?

Other user-fee methods of raising revenue that could be considered include charging motorists for the number of miles traveled; adding new tolls; creating a new fee for alternative-fuel vehicles; and increasing vehicle registration fees.

(Email Maureen Groppe at mgroppe@gannett.com. Follow her on Twitter: @mgroppe.)


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