When gas prices decline, as they have done in the past few years, many state lawmakers think they can “get away with” increasing taxes on the purchase of gasoline, since consumers won’t “notice” the increase. Increasing gas taxes seems an easy way to fill budget gaps.
That perspective is short-sighted. Gas taxes tend to disproportionately affect lower-income drivers, who tend to drive older, less fuel-efficient vehicles. Moreover, gas prices may be low today, but they can increase quickly. Gasoline isn’t entirely a domestic product, and its prices are often determined by forces out of the control of the states and federal government. It’s not likely state lawmakers would lower their gas taxes if gasoline prices were to rise.
Like tax hikes on other forms of energy, gas tax hikes increase the cost of nearly all goods and services. Gas taxes force consumers to pay more directly at the pump, and consumers also pay more indirectly to cover the increased cost of transporting the goods and services they use.
Ultimately, the U.S. vehicle fleet is becoming more fuel-efficient, causing motor-fuel tax revenues to be on the decline. Taxing a declining industry is not sound fiscal policy and only increases the tax burden on individuals and families.