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Research & Commentary: Gas Tax Hikes Will Not Save Bay State’s Transportation System

November 25, 2019

Two proposals from Transportation for Massachusetts and the Boston Chamber of Commerce call for 25-cent and 15-cent gas tax increases, respectively.

Profligate spending is an issue that has long plagued transportation funding. Inflated labor costs and big bureaucracy often increase the costs of infrastructure projects far above initial estimates. As more fuel-efficient vehicles enter the market, gasoline tax revenues will continue to decline. Consequently, state lawmakers need to consider more modern and effective ways to fund road construction and traffic infrastructure.

In Massachusetts, two advocacy groups have proposed gas tax increases to fund transportation projects and combat traffic around Boston and the rest of the state. The first proposal brought to lawmakers by the advocacy group Transportation for Massachusetts calls for a 25-cent increase in the gas tax. The second gas tax proposal from the Boston Chamber of Commerce is lower, calling for a 15-cent increase over the next three years.

The gas tax has not been increased in Massachusetts since 2013. Increasing the gas tax will not resolve transportation revenue shortfalls due to more fuel-efficient vehicles and the rise of electric automobiles. The growth in fuel-efficient cars has decreased motor-fuel tax coffers and disproportionately shifted the transportation tax burden to low-income drivers, a group that typically owns older, less-fuel-efficient vehicles. In several states, the gas tax has become increasingly inefficient, with revenue falling far short of estimated goals; this has left a deficit that legislatures are struggling to fill. Increasing what has proven to be a failing tax is not the answer.

In 2015, Daniel Vock, writing for Governing, analyzed state gas tax data reported to the U.S. Census Bureau and found two-thirds of state fuel taxes failed to keep up with inflation, leading to dramatic reductions in fuel-tax-related revenue. Wendell Cox and Ronald Utt argue gas taxes have a significantly greater detrimental effect on lower- and middle-income families than they do on the wealthy, and Americans for Prosperity estimates lower gas prices amount to approximately $100 in additional spendable income per month for an average family.

Instead of raising taxes, Massachusetts legislators should explore modern and efficient ways to fund road construction and traffic infrastructure, such as privatizing roads and establishing toll systems. Switching to an all-electronic tolling system would be a cost-effective way to generate revenue while providing a fairer system for taxpayers. Electronic tolling would also remove much of the administrative bloat created by older systems that relied on toll operators.

In addition to the gas tax increases, the state is also looking at the idea of congestion pricing. Congestion pricing, an alternative to gasoline taxes, uses market principles to address traffic congestion. Under a congestion pricing model, road operators charge a variable price based on congestion, thereby managing demand and limiting congestion.

Cato Institute transportation policy expert Randal O’Toole has observed that the traditional use of gasoline taxes as a highway user fee to combat traffic congestion fails because the taxes motorists pay are not directly connected to the specific roads they use. Congestion pricing addresses these problems by using market principles to address traffic congestion. Under congestion pricing, operators of a road charge a variable price based on congestion, allowing the operator to manage demand and limit congestion. 

Another method to reduce ever-growing transportation costs is to eliminate project labor agreements and prevailing wage laws. A project labor agreement (PLA) is a pre-hire collective bargaining pact establishing the terms and conditions of employment for a specific construction project. PLAs unfairly benefit organized labor and increase project costs paid by taxpayers. Studies by the Beacon Hill Institute and New Jersey Department of Labor found PLAs increase a project’s base construction bid and building costs. A 2015 Buckeye Institute report found PLAs can increase the cost of construction projects by 12-18 percent.

Prevailing wage laws are a form of centralized planning and wage control that increases government-contracted construction costs, reduces competition, and politicizes public projects. These laws force contractors to set unnecessarily high labor rates, often without any consideration for the type of work being done or employee skill levels. As an example, in 2013, the Anderson Economic Group estimated the impact of Michigan’s prevailing wage law on the average annual expenditures for construction of K–12 and higher-education facilities over a 10-year period. The results: prevailing wage laws cost Michigan taxpayers $2.24 billion in increased costs, an average of $224 million per year.

One reform that should be avoided is automatically indexing future gas tax increases to commodity prices or the Consumer Price Index. Indexing is problematic because it makes politicians and regulators less accountable for tax changes and can place upward pressure on the very measures used to determine the rate.

The following documents provide additional information about how motor-fuel taxes are applied and their effect on the economy.

Dispelling the Myths: Toll and Fuel Tax Collection Costs in the 21st Century
https://reason.org/wp-content/uploads/2012/11/dispelling_toll_and_gas_tax_collection_myths.pdf
In this Reason Foundation Policy Study, Daryl S. Fleming examines all-electronic tolling, its basic operations plan and business model, the principal factors affecting toll collection costs, and a number of reforms states can make to reduce the cost of toll collection.

23rd Annual Highway Report on the Performance of State Highway Systems
https://reason.org/wp-content/uploads/2018/01/23rd_annual_highway_report.pdf
In this report, the Reason Foundation ranks the performance of state highway systems in 11 categories, including spending per mile, pavement conditions, deficient bridges, traffic congestion, and fatality rates.

State Motor Fuel Taxes
https://www.api.org/oil-and-natural-gas/consumer-information/motor-fuel-taxes/gasoline-tax
The American Petroleum Institute documents each state’s current motor-fuel taxes (both gasoline and diesel).

Alternatives to the Motor Fuel Tax
https://www.heartland.org/publications-resources/publications/alternatives-to-the-motor-fuel-tax?source=policybot
This report, prepared by the Center for Urban Studies at Portland State University and submitted to the Oregon Department of Transportation, evaluates potential alternatives to motor-fuel taxes. The report also identifies the economic and technological problems that must be addressed when designing alternative revenue sources.

Designing Alternatives to State Motor Fuel Taxes
https://www.heartland.org/publications-resources/publications/designing-alternatives-to-state--motor-fuel-taxes?source=policybot
Writing in Transportation Quarterly, Anthony M. Rufolo and Robert L. Bertini consider the future of motor-fuel taxes in world in which more fuel-efficient vehicles are rapidly becoming available. They also report on the economic effects of road pricing as a substitute for fuel taxes.

Paying at the Pump: Gasoline Taxes in America
http://taxfoundation.org/article/paying-pump-gasoline-taxes-america
In this paper from the Tax Foundation, Jonathan Williams argues gas taxes can be an effective means of funding transportation improvements. In many cases, however, governments exploit the taxes for political reasons, spending them on projects unrelated to roads and other transportation projects.

Research & Commentary: Congestion Traffic Pricing
https://www.heartland.org/publications-resources/publications/research--commentary-congestion-traffic-pricing?source=policybot
Congestion pricing, an alternative to gasoline taxes, uses market principles to address traffic congestion. Under a congestion pricing model, road operators charge a variable price based on congestion, thereby managing demand and limiting congestion. Heartland Senior Policy Analyst Matthew Glans examines several proposals for implementing pricing systems to alleviate traffic congestion.

Raising Gas Taxes Won’t Fix Our Bridges
https://reason.org/wp-content/uploads/2007/10/59f2e045a676b9c69bb9139b2c217bf3.pdf
In the aftermath of the I-35 bridge collapse in Minneapolis, Minnesota, Adrian Moore of the Reason Foundation argues increasing fuel taxes should not be the only response to state transportation funding problems. Moore wrote, “First we must examine how we spend transportation dollars now. Then we maximize the value out of those dollars. Finally, the last step is to address the need for additional revenue.”

Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this and other topics, visit the Budget & Tax News website, The Heartland Institute’s website, and PolicyBot, Heartland’s free online research database.

The Heartland Institute can send an expert to your state to testify or brief your caucus; host an event in your state, or send you further information on a topic. Please don’t hesitate to contact us if we can be of assistance! If you have any questions or comments, contact Lindsey Stroud, a state government relations manager at The Heartland Institute, at lstroud@heartland.org or 757/354-8170.

Author
Matthew Glans joined the staff of The Heartland Institute in November 2007 as legislative specialist for insurance and finance. In 2012, Glans was named senior policy analyst.
mglans@heartland.org @HeartlandGR