Last week the President of the U.S. Chamber of Commerce urged the nation to raise the gas tax. The Chamber reasoned that the federal gas tax is too low because it was set years ago as a fixed number of cents per gallon; inflation has eaten away much of its value. A higher gas tax would make more funds available to pave the nation with asphalt, and it would create greater incentives to avoid inefficient energy use. You can guess which benefit the Chamber is more interested in discussing (hint: it isn’t conservation).
In addition to the federal tax, many if not all states assess an additional local tax. In Massachusetts, the state part of the tax is a 21-cent surcharge per gallon of gasoline. But that method of calculation is new. From as early as 1949, Massachusetts assessed the tax as a percentage of the cost of wholesale gasoline, rather than by the gallon. As a result, the tax kept pace with inflation, unlike its federal counterpart. The system worked because when prices increased with inflation, so too did the total tax collected. The initial tax rate was 10%; in 1991 it increased to 19.1%.
Then in 2000 the Cellucci administration, in a moment of weakness, addressed rising gasoline prices by converting the flexible 19.1% tax into a flat 21-cent surcharge per gallon of gas. It was an obscure change with dramatic results. For the rest of the decade, the tax lagged significantly behind inflation and coffers ran dry of money that might have been used for transportation purposes.
If the gas tax today was calculated the same way as in 1999, the current rate for the gas tax would be about 30-cents per gallon. That’s 9 cents per gallon more than the current tax. (The official wholesale price of a gallon of gas was $1.57 in the last month for which the figures are available (April)). But unfortunately the change was made in 2000 and we’re still suffering the impact; transportation revenues have not kept pace.
Recently, the Governor proposed a 19-cent increase in the gas tax, to 40 cents per gallon. The Massachusetts Senate characteristically dismissed the idea of an increase saying the Legislature had voted against it. The Governor and the Legislature obviously realize that the Commonwealth needs to raise more money to maintain the existing level of services. Toll hikes and increases in the gas tax apparently have been ruled out. Only an increase in the statewide sales tax– which doesn’t apply to gasoline– has been approved; one wonders about the equity of taxing everything except transportation to fund transportation needs.
So here’s a modest proposal. Why not roll back the gas tax to 1999 levels … and once again calculate the tax as 19.1 percent of the wholesale price of gasoline (30-cents per gallon in April). Throw out the flat tax of 21 cents per gallon. The proposal would allow the Governor to raise additional transportation funding from a source other than general funds, and the Legislature credibly could claim that it acted responsibly to undo a heedless stealth tax cut that was implemented in the hazy days of 2000. A functional 9-cent per gallon increase in the tax would fall roughly at the midpoint of the Governor’s proposal (19-cent increase) and the Legislature’s proposal to do nothing. And the old method of computing the tax naturally keeps pace with inflation — meaning the tax won’t need to be revisited for some time.
So how about it? Why not revert to a formula for the gas tax that served the Commonwealth well for about fifty years: switch back to calculating it by percentage of price, rather than per gallon.