COLUMN: Adding gas tax could lessen budget crisis
July 28, 2003
Non-policy wonks, beware — this column is not for you. Keep flipping and you’ll soon find the crossword puzzle.
Now that the disclaimer is out of the way, the way Iowans currently pay for road maintenance and construction is both inefficient and distorts the costs of road usage — yet with the simple idea of moving road funding from a combination of vehicle use and fuel taxes into one streamlined system of fuel consumption taxes, the burden of road costs would be both more equitably distributed and better reflect the true cost of road usage.
Shifting road funding entirely to a consumption-based model comes with benefits to appease both economic liberals and conservatives. On the liberal side, shifting road costs entirely into fuel taxes inherently puts the cost burden of roads upon those who use the roads the most and those who use them most inefficiently. By shifting costs directly to consumption, one creates an incentive for wise use of resources — drivers have a greater incentive to drive more fuel-efficient vehicles, carpool, use public transportation when available, and limit discretionary driving. This comes with a double benefit to Iowa’s environment — less cars on the road means less pollution. More so, the current system of taxing vehicles based upon value in terms of registration fees creates an economic disincentive from upgrading older vehicles, which typically have poorer pollution control devices and usually are less fuel-efficient. Thus under this plan drivers are given a carrot and a stick — the cost of upgrade is reduced while the increased cost of day-to-day driving provides a subtle prod for drivers to carefully evaluate their driving habits.
To conservatives, this plan would offer promise as well, primarily in the fact that this would shift road costs primarily to a user fees model. In this model, those who use the roads the most will pay the greatest share of taxes in maintaining them. Thus the costs of the service are better distributed to those who use it most.
More so, unlike mandatory taxes such as vehicle registration, consumption taxes can be avoided through simple modification of behavior — drive less. An added benefit of such a policy would also be in streamlining government operations — without the need for drivers to renew vehicle registrations every year, less government resources would need to be devoted to agencies such as the Department of Motor Vehicles — a definite plus in a time of budget crisis.
The costs of such a policy change would be far from extreme. In 2002, Iowa collected approximately $258.4 million in motor vehicle use taxes along with $393.6 million in fuel taxes and $5.6 million in motor vehicle title surcharges. Thus the change would require an increase of less than 13.5 cents per gallon in fuel taxes. Currently, Iowa’s fuel tax is 20 cents per gallon, as it has been since 1989 (19 cents per gallon for ethanol blend).
To give an idea of how this would affect gas prices in and around Iowa, as of July 28, AAA reported the average cost of regular unleaded gasoline in Iowa at approximately $1.477 per gallon while according to the Energy Information Administration, the Midwest average price for gasoline was $1.497 per gallon while the U.S. national average was $1.524 per gallon. So while an increase of $.135/gallon may seem to bring about some sticker shock (pushing Iowa’s gas price to about $1.612 per gallon), Iowans would no longer pay vehicle registration fees.
Such a number also proves to be an overestimate, making no attempt to calculate the savings brought about in terms of bureaucratic overhead.
Such arguments have thus far only glossed over the principled argument at stake here, however — a tax policy ultimately based upon consumption alone is a model based upon individual choice rather than coercion. Instead of being forced to cough up taxes up front, individuals determine their tax burden based upon how much they use services — a much more liberty-oriented approach.
The success of such a model would make Iowa a national policy innovator, a template for other states and indeed even the nation to follow.
Currently our system of federal highway funding and road subsidies effectively creates a distorted market for transportation. Shifting the cost of roads to a consumption-only basis would restore a more free market to transportation by having road travel reflect its true costs — something both liberals and conservatives can be happy with.