Gas-Tax Buying Power Hits All-Time Low in Some States, Study says

Tom Warne Report, 27 May 2014

Bloomberg News – May 19, 2014

The gasoline tax’s purchasing power has fallen to historic lows in 10 states because the levy is so low and has not been raised in so long, according to a new study. This has occurred in Alabama, Alaska, Delaware, Idaho, Iowa, Nebraska, New Jersey, South Carolina, Utah and Virginia. The rate has not been adjusted for more than 10 years in twenty four states and sixteen states have gone more than two decades without an adjustment, said the report released earlier this month by the Institute on Taxation and Economic Policy, a Washington think tank.

The buying power of each state’s gasoline tax was measured using inflation factors and compared the states’ current gas tax rates with the average rate levied in each state since its gasoline tax was first implemented.

“For example, while the 2-cent gas tax that Delaware levied in 1924 may sound extremely low to today’s drivers, in the context of the 1924 economy, it was actually higher than the [23-cent] tax rate Delaware levies today,” the report said. A 2-cent tax in 1924 was roughly equivalent to a 27.8 cent tax today, according to the report.

“Raising the gas tax in these states could reverse the long-running decline in their value brought about by inflation,” the study said.

Certain states’ tax rates have “been allowed to stagnate” so long that to recover the levy’s purchasing power, the states would need to approve significant increases just the bring the tax to its previous value.

For example, South Carolina would need to triple its 16-cent gasoline tax to get close to recovering what it lost in buying power, the study said.

The institute has plans to look at state diesel taxes in the future.

“We’re still working on compiling a full history of every state’s gasoline and diesel tax rates,” said Carl Davis, the senior policy analyst who handles fuel-tax issues at the institute. “Once that happens, we’ll be in a better position to do these kinds of analyses for diesel fuel tax as well.”

While it is nice to have yet another Washington think-tank take a stand on fuel tax, they are stating the obvious to us in the industry. It however confirms the degree of difficulty state lawmakers face in raising the per gallon tax rate. Those states which have managed to have built-in inflationary increases, should count their good fortune. JN

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