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Research & Commentary: Wyoming House Putting Fuel Tax Increases on their Christmas Wishlist

December 22, 2021

In this Research & Commentary, Samantha Fillmore examines a House Bill in Wyoming that would increase fuel taxes across the next three years.

Wyoming lawmakers are considering increasing the state’s fuel taxes with House Bill 14. If passed, the bill would amend the tax code from the current $0.24 per gallon to $0.39 per gallon after June 30, 2024. HB 14 would initially adjust the fuel tax rate to reach $0.29 for the period beginning July 1, 2022, and ending June 30, 2023. Then it would adjust to reach $0.34 for the period beginning July 1, 2023, and ending June 30, 2024, thereby after the new rate would reach and remain at $0.39. Like all taxes, this increase in fuel taxes would ultimately be borne by Wyoming consumers, who would pay more for gas at a time when the national average for a gallon of gas is at its highest since 2014.

Historically, gasoline taxes have been inherently unreliable sources of funding when it comes to state roads, maintenance, and other transportation infrastructure projects. This is partly attributable to the rise of more fuel-efficient vehicles. According to The Electric Vehicle World Sales Database, sales of electric vehicles have been consistently increasing since 2011. Furthermore, if states begin to follow in the footsteps of California Gov. Gavin Newsom, we are likely to see a phasing-out of the sale of gasoline-powered cars in the future. 

In 2015, Daniel Vock, writing for Governing, examined state gasoline tax data reported to the U.S. Census Bureau and discovered two-thirds of state-imposed fuel taxes failed to keep state transportation budgets afloat amid inflation. Moreover, the COVID-19 pandemic has added an unforeseen layer to the complexities and shortcomings of using gasoline taxes to subsidize state-run transportation programs and projects. 

The stark decline in driving that accompanied lockdown orders drastically reduced gasoline tax revenue for state and local governments, highlighting the fact that gas taxes are no longer viable sources for state infrastructure and transportation funding. According to the American Road and Transportation Builders Association, more than $8.5 billion in planned projects across 14 states were canceled or delayed because of budgetary shortcomings due to COVID-19. 

Additionally, fuel taxes are highly regressive and carry with them a myriad of economic consequences, including creating new direct-to-consumer costs. As a function of corporate finance, large-scale corporations and transit entities will see their usual budget allocation for fuel fall short with increasing prices, thus higher prices on goods and services will be the result. 

As is the case with many top-down taxes, an increase in gasoline taxes will hit small business owners harder at a time when small businesses do not need any more hurdles. According to Wallethub, 87 percent of small business owners are struggling due to the ongoing pandemic. 

In a Maryland Public Policy Institute study, Wendell Cox and Ronald Utt argue that gas taxes have a significantly greater negative effect on the budget of lower- and middle-income families than they do for wealthier households. Gasoline consumption is inelastic for most Americans, meaning those who are already marginally able to pay their bills face an increased financial burden due to an increase in fuel taxes.

Moreover, the revenue from fuel taxes is not always allocated to transportation upgrades. The latest example of this took place in Pennsylvania, where gas tax revenue intended to fund bridge repairs went to the state police instead. The Keystone State saw $802 million in gas tax revenue allocated toward police funding. While police funding is paramount to a safe society, there is no way for constituents to be sure that gas tax funding goes towards the betterment of state transportation infrastructure. 

Furthermore, as more electric and fuel-efficient vehicles enter the market, policymakers must consider more modern and effective ways to fund road construction and other state transportation infrastructure projects. Such is why many states have turned to privatizing roads and establishing toll systems as ways to improve their roadways. 

Amid a time when U.S. inflation has hit a 39-year high, U.S. gasoline prices have climbed 58 percent over the past year, according to The Wall Street Journal. There could not be a more ill-timed proposal to levy higher taxes on Wyoming consumers who are currently paying an average of $3.36 per gallon for regular-grade gasoline. In comparison, the average price for regular one year ago was $2.21, according to AAA Gas Prices.

Overall, as lawmakers in Wyoming consider HB 14, they should avoid relying upon ultimately unreliable gas tax increases and craft legislation and policies that would provide more effective infrastructure funding in the years to come.

 

The following articles provide more information about how motor-fuel taxes are applied and their subsequent effects on the economy.

 

Raising Gas Taxes Won’t Fix Our Bridges

https://www.heartland.org/publications-resources/publications/raising-gas-taxes--wont-fix-our-bridges

In this paper, 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.”

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. 

Alternatives to the Motor Fuel Tax

https://www.heartland.org/publications-resources/publications/alternatives-to-the-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.

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). 

Policy Tip Sheet: Gas Taxes are not the Long-Term Solution to Funding Transportation

https://www.heartland.org/publications-resources/publications/policy-tip-sheet-gas-taxes-are-not-the-long-term-solution-to-funding-transportation1?source=policybot

In this Policy Tip Sheet, Matthew Glans examines gasoline taxes, how they have become less effective over time, and why states can no longer rely on them to fund state transportation projects.

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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, our Consumer Freedom Lounge, and PolicyBot, Heartland’s free online research database.

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Article Tags
Taxes
Author
Samantha Fillmore is a State Government Relations Manager for The Heartland Institute.
sfillmore@heartland.org @GRHeartland