ADVOCATES HAVE LONG pointed to an increase in the state’s gas tax as a way to generate new revenue for transportation needs, often citing the much steeper increases in MBTA fares in recent years than in the state levy on fuel used by drivers. With the Legislature poised to consider new transportation revenue this fall, an “equity” argument for raising the gas tax is likely to surface, but a new report cautions that a simple hike in the gas tax would not be the best way to even the paying field.
Gas taxes are a “regressive” approach to generating revenue that “tend to hit those with low and moderate incomes the hardest,” according to the report issued by the liberal-leaning Massachusetts Budget and Policy Center. The effect is particularly acute in rural areas, where people must drive longer distances for everything from work to grocery shopping, and there are often not viable public transportation alternatives.
The state gas tax generated $769 million in fiscal year 2018, or about 11 percent of all transportation operating and capital revenue the state raised.
Since 1991 — the last time the state raised both the gas tax and T fares to fund transportation needs — the gas tax rate has fallen 40 percent, after adjusting for inflation, while transit fares have been increased anywhere from 50 to 80 percent, according to the report.
Nevertheless, if the state imposed a 10 cent increase in the current 24-cents-per-gallon gas tax, the report says, households in the bottom fifth of earnings would pay nearly 0.20 percent of their income toward the tax hike, while those in the second- and third-highest income quintiles would pay only 0.10 percent of their income toward the tax, and earners in the top 1 percent would pay just 0.01 percent of their income.
“There are more fiscally sustainable and progressive ways to generate revenue for transportation, such as through targeted changes to corporate or personal income taxes,” says the report, authored by Phineas Baxandall.
That said, the report points to one way a gas tax could be made fairer. Coupling an increase in the gas tax with an expansion in the state’s Earned Income Tax Credit for lower-income residents could offset the impact of the tax on those households. The last time the federal gas tax was increased — in 1993 — it was paired with changes in the federal tax credit to cushion the impact on lower-income households.
A similar approach to any increase in the state gas tax would be fairer, says the report, although it would also reduce the net revenue generated by the tax. An increase in the earned income tax credit to offset the impact of a 15-cent hike in the gas tax on lower-income households, for example, would reduce the $492.5 million state revenue gain from the tax by $113 million.
It’s a trade-off one leading transportation advocacy group thinks is worth it.
Transportation for Massachusetts, a nonprofit coalition, has called for a 25-cent increase in the gas tax to fund road and transit improvements. “To help address equity concerns, it makes sense to pair this increase with low-income tax credits such as a stronger state EITC,” said Chris Dempsey, the group’s director.
It’s not only equity concerns that may be a barrier to increasing the gas tax. The tax has been politically charged. Although lawmakers increased it by 3 cents in 2013, a provision they included to index the tax to inflation was repealed by voters the following year in a ballot referendum.
There is an environmental argument for increasing the gas tax, since it may lead some to drive less or switch to more fuel-efficient vehicles. That could help efforts to reduce automobile emissions, one of the principal sources of greenhouse gases. But gas-tax increases are often not tied to big changes in driving habits because the frequent large fluctuations in fuel prices. The report says a doubling this month of the 24-cent state gas tax would still leave the cost of a gallon of regular gas below where it stood a year ago.
The report also warns that the gas tax is a declining source of revenue, making it an unreliable funding stream for transportation needs. After increasing every decade from the 1950s to the 1990s, the number of gallons of gas subject to the Massachusetts tax has declined over the last 14 years, despite population growth and an unparalleled economic expansion, the report says. Enhanced fuel efficiency in cars is largely responsible, though future years will also see big growth in electric vehicles not subject to the gas tax at all.