Skip Navigation

Research & Commentary: Gas Tax Hikes Will Not Solve Alabama’s Road Funding Woes

November 30, 2018

In this Research & Commentary, Matthew Glans examines Alabama's gasoline tax, how revenue is running short, and the potential for future tax hikes.

According to a 2017 The Road Improvement Program report, Alabama’s decaying roads and bridges cost drivers 4.2 billion annually in vehicle operation costs, safety, and congestion. The report revealed that 19 percent of the Yellowhammer State’s major urban roads were in poor condition and 8 percent of the bridges were structurally deficient. Many critics are blaming these infrastructure problems on the lack of sufficient gas tax revenue; Alabama last increased its fuel tax in 1992. However, this shortfall is not surprising given gasoline taxes are ineffective and have increasingly left transportation systems shortchanged.

Alabama is the most recent state to consider a gas tax increase. In total, 27 states have raised or reformed their fuel taxes since 2013. Although the current proposal is still being developed for the next legislative session, several Alabama lawmakers have confirmed that a new measure will be introduced that would not only increase the gas tax, but include rules on how the new funds are spent. Additionally, the legislation would index the new tax to inflation.

Unfortunately, indexing the gas tax to inflation is problematic. Under such a scheme, policymakers avoid accountability because they don’t have to pass new legislation each time the tax rises. If lawmakers want to raise the gas tax, they should be required to vote to increase it, and thus be held responsible for the higher rate. Second, these policies can be especially detrimental when inflation outpaces wage growth.

Even worse, the rise of fuel-efficient cars has decreased motor fuel tax coffers and disproportionately shifted the burden to low-income drivers, a group that typically owns older, less fuel-efficient vehicles. According to Americans for Prosperity, households with incomes of less than $50,000 per year currently spend more than 20 percent of their after-tax income on energy. Wendell Cox and Ronald Utt argue gas taxes have a stronger effect on lower- and middle-income families than they do on the wealthy. Americans for Prosperity estimates lower gas prices amount to approximately $100 in additional spendable income per month for an average family, and research shows increasing gas taxes could cause low-income families to drive less, which could reduce employment options. 

One reform that merits consideration is limiting the use of gas tax dollars to transportation projects. Wasteful spending is an issue that has long plagued transportation funding. Bloat, inflated labor costs through prevailing wage laws and project labor agreements, and inefficient bureaucratic agencies often increase the budgets of new infrastructure projects far above initial estimates.

As sales of fuel efficient vehicles continue to expand, motor-fuel tax revenues will decline more rapidly. Alabama must find new and more efficient ways to cover the costs of transportation projects if it wants to avoid a fiscal disaster. For instance, the state could privatize roads, establish toll systems, or, in line with what has occurred in several cities across the country, lawmakers could implement congestion pricing—varying toll prices based on congestion—to manage demand and limit traffic problems.

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


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, bridges, traffic congestion, and fatality rates.

State Motor Fuel Taxes: October 2018
https://www.api.org/~/media/Files/Statistics/State-Motor-Fuel-Taxes-Report-October-18.pdf
The American Petroleum Institute documents each state’s current motor-fuel taxes (both gasoline and diesel).

GSI Analysis: State Revenue Report—New Taxes Increase Some Revenues, Others Show Weakness
https://www.gardenstateinitiative.org/updates/2018/8/24/gsi-analysis-state-revenue-report-new-taxes-increase-some-revenues-others-show-weakness
The Garden State Initiative examines several novel New Jersey taxes and their effects on revenue. The author discusses the state’s gasoline tax, New Jersey’s revenue shortfall, and the possible need for additional tax hikes.

Alternatives to the Motor Fuel Tax
http://heartland.org/policy-documents/alternatives-motor-fuel-tax 
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
http://heartland.org/policy-documents/designing-alternatives-state-motor-fuel-taxes
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
http://heartland.org/policy-documents/research-commentary-congestion-traffic-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. 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://www.heartland.org/policy-documents/raising-gas-taxes-wont-fix-our-bridges
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 Arianna Wilkerson, Heartland’s government relations coordinator, at awilkerson@heartland.org or 312/377-4000.

Article Tags
Taxes
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