Skip Navigation

Research & Commentary: Gas Taxes Are a Poor Option for Funding Illinois Infrastructure

October 27, 2017

In this Research & Commentary, Matthew Glans examines Illinois' transportation funding shortfall and how gasoline taxes are not the best option for generating additional revenue.

Funding transportation projects has been a growing problem for the State of Illinois, as it has for many other states. In 2017, when Illinois passed its first budget in years, the record $5 billion income tax hike did not include infrastructure spending. Illinois has traditionally funded new infrastructure through a separate capital bill, which generates a different series of dedicated funds and liabilities for the state. The last capital bill in Illinois was passed in 2009, when $31 billion was appropriated for infrastructure projects.

The General Assembly is soon expected to begin debate over how to fund new infrastructure projects. At the top of the funding-source list for many legislators is an increase in the state gasoline tax. There is currently no proposal outlining the size of a potential gas tax increase, but the Illinois Policy Institute (IPI) predicts the tax hike proposal could range from 5 cents per gallon to as high as 30 cents per gallon, a rate called for by the  Metropolitan Planning Council in 2016.

An increased gas tax would be added on top of the taxes Illinoisans already pay at the pump. High gas prices harm Illinoisans more than citizens in “almost any other state,” warns IPI: “When prices rise, the Illinois gas-tax structure hits drivers harder than gas taxes in almost any other state.”

One of the main reasons Illinois’ gas taxes are amongst the highest in the nation is because Illinois is one of only seven states that also applies a sales tax to gasoline purchases, which is added on top of state and local motor fuel taxes. According to the American Petroleum Institute, as of July 2017, Illinois drivers pay the 18th highest gas taxes in the United States; as recently as 2011, Illinoisans paid the third highest combined local, state, and federal gas taxes in the nation.

Any proposal increasing the gas tax ignores that the mounting evidence shows gasoline levies are a regressive form of taxation that have increasingly left transportation systems shortchanged. In recent years, 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.

Wendell Cox and Ronald Utt argue gas taxes have a stronger effect on lower- and middle-income families than they do on the wealthy. The tax could also cause low-income families to drive less, which could reduce employment options. Americans for Prosperity estimates lower gas prices amount to approximately $100 in additional spendable income per month for an average family, which means the recent nationwide drop in gas prices could potentially lead to an additional $100 billion of economic growth

IPI argues legislators should take a look at the inflated cost of public construction projects in Illinois before they allow any tax or fee hikes. Austin Berg, a writer for IPI, points to Illinois’ high workers’ compensation costs – Illinois has the highest workers’ compensation costs in the Midwest – and prevailing-wage requirements as key cost drivers for Illinois transportation projects. As an example, Berg compared Illinois to Indiana and found Indiana’s average workers’ compensation insurance premium costs made up only 4 percent of an average payroll, compared to 22 percent in Illinois.

It is not appropriate to add the burden of additional tax or fee increases on households that are already cash-strapped. A tax hike would raise prices on goods and services throughout the economy, not just on gasoline because virtually all consumer goods are transported using gasoline-powered transportation. Businesses will simply pass the added costs on to consumers.

As the rise in fuel efficiency continues, motor-fuel tax revenues will continue to decline. Illinois will have to explore more modern and efficient ways to fund road construction and traffic infrastructure. These include privatizing roads and establishing toll systems. In several cities, transportation agencies are using 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.
 

State Motor Fuel Taxes: October 2017
http://www.api.org/oil-and-natural-gas/consumer-information/motor-fuel-taxes
The American Petroleum Institute documents each state’s current motor-fuel taxes (both gasoline and diesel). 

Hosed at the Pump: Illinois Gas Taxes
https://www.illinoispolicy.org/hosed-at-the-pump-illinois-gas-taxes/
The Illinois Policy Institute discusses the state gasoline sales tax, how it harms Illinois drivers, and why this high tax is inefficient and unnecessary. Illinois is one of only seven states charging a sales tax at the gas pump. “Illinois should follow the lead of the 43 states that don’t charge a sales tax on gasoline and end this practice, saving taxpayers millions of dollars.”

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.

New Bill Would Make Illinois Gas Taxes Highest in the Nation
https://www.illinoispolicy.org/new-bill-would-make-illinois-gas-taxes-highest-in-the-nation/
Austin Berg of the Illinois Policy Institute examines a plan from the Metropolitan Planning Council that calls for a massive 10-year, $43 billion plan to fund state and local roads, public transportation, railways, and large public projects. This plan would be funded by a huge 30-cents-per-gallon hike of the state’s motor-fuel taxes. 

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 as more fuel-efficient vehicles become 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 
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 improvements. 

Gasoline Fuel Tax Rates as of January 2016
https://www.artba.org/economics/research/gas-tax-history/
The American Road & Transportation Builders Association provides a map documenting state gasoline tax rates, using data from state Departments of Revenue.

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 congestion pricing, operators of a road charge a variable price based on congestion, allowing the operator to manage demand and limit 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 John Nothdurft, Heartland’s director of government relations, at jnothdurft@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