Building a Better Gas Tax

In 1992, Disney’s Aladdin was the top grossing movie, the Washington Redskins won the Super Bowl (really!) and the average price of gas was just $1.09 per gallon. It was also the last time the state of Maryland increased the tax rate on gasoline, from 18.5 cents to the current rate of 23.5 cents per gallon.

The Institute on Taxation and Economic Policy (ITEP) released a report this morning entitled Building a Better Gas Tax: How to Fix One of State Government’s Least Sustainable Revenue Sources. ITEP found that on average the purchasing power of state gas taxes fell by 20 percent since they were last raised (diesel taxes fell 18 percent). In Maryland, the state gas tax purchases 40 percent less than it used to, while the state diesel tax purchases 41 percent less. This translates into $509 million less spending in 2011 on bridge maintenance, pothole repair, road construction and other investments in the transportation infrastructure of our state.

The authors of the ITEP report offer three policy recommendations for states:

• Increase gas tax rates to at least what they were worth when last raised. In Maryland this would mean raising the gas tax by 15.8 cents.
• Change the law so that gas tax rates grow with transportation construction costs.
• Create or enhance targeted tax credits for low income families to offset the impact of gas tax reform.

Maryland’s gas tax was in the news in November as well, when the Blue Ribbon Commission on Maryland Transportation Funding released its final report. The Commission also recommended raising Maryland’s gas tax 15 cents, spread out over three years. According to the ITEP report, this would translate to an additional cost of $6.46 per month for the average driver. Some of that might even return to drivers in the form of less time spent wasting gas stuck in traffic or reduced repair costs on their vehicles due to better maintained roads. It looks likely that the General Assembly will take up raising the gas tax in the next session.

However, raising a dedicated tax like the gas tax is only part of the solution for a better Maryland. Maryland needs new revenues to support all sorts of programs, from public safety to healthcare. In the last five years, Maryland has cut its budget by 2 billion and 5,500 employees. Now it is time to start raising revenue to support the vital services provided by the state.