The Gas Tax

There's been a lot of buzz about Governor O'Malley's proposal to pursue a balanced approach to end the current sales tax exemption on gasoline. We wanted to make sure you saw this Baltimore Sun editorial...

KEY POINT: "Raising the gas tax is the right thing to do today if Maryland is to preserve its quality of life tomorrow and for the next generation."

The cost of transportation

Our view: Gov. Martin O'Malley's proposed 6 percent tax on gasoline may be a tough sell in Annapolis, but it's the right thing for Maryland's future

January 31, 2012

When Gov. Martin O'Malley gives his annual State of the State address Wednesday, he will officially unveil his plan to apply a 6 percent sales tax to gasoline. The public's mood about gas prices being what it is, the governor probably shouldn't expect huge applause — despite the fact he deserves it.

Maryland hasn't raised the gasoline tax since William Donald Schaefer was governor two decades ago, and the current rate — applied as a 23.5-cent charge per gallon — has been rendered insufficient by inflation. The state faces tens of billions of dollars of unmet highway, bridge, transit, port and other transportation needs, but its Transportation Trust Fund has little more than enough for basic maintenance.

What's been done in the past to avoid raising the gas tax — the usual motley assortment of fees, fares and transportation-related taxes — is no longer good enough. If Maryland continues to embrace a 1992 tax rate, it will have to settle for crumbling 1992-era infrastructure.

Polls show a majority of Maryland residents oppose a gas tax increase. Twenty years ago, the public was largely indifferent about the tax, which at least has the benefit of being a "user's fee" (the more you drive, the more you pay). Rising gasoline prices have obviously caused people to become much more sensitive about prices at the pump.

But the tax — even if Mr. O'Malley convinces lawmakers to approve his increase — isn't what's driving fuel costs. What the governor is proposing would be collected at the wholesale level and would not apply to existing state and federal excise taxes — that is, motorists would not be paying a tax on a tax. Mr. O'Malley would also phase in the tax over several years — and plans to offer a "circuit breaker" to delay any of those incremental steps if average gasoline prices rise too steeply (perhaps 15 percent) during the year.

Thus, someone paying a theoretical $3.52 per gallon at the pump would see a first-year 2 percent tax applied to roughly $3.10 ($3.52 minus the state's 23.5-cent and federal government's 18.4-cent tax) or about 6 cents per gallon. Taken together, that's about 48 cents per gallon, or less than 14 percent of the cost of a gallon of gasoline. Even when fully implemented, the total cost of fuel taxes would be around 60 cents, or 17 percent of the price. In 1992, state and federal taxes represented closer to 20 percent of the price of gasoline.

What would motorists get in return? When the full gas tax increase is realized, about $613 million annually to spend on badly-needed transportation infrastructure. It means reduced congestion, upgraded mass transit service, safer roads and bridges and a more robust state economy (not to mention thousands of construction-related jobs).

Household budgets may be hurting, but many will be suffering a whole lot less if Maryland businesses are thriving. Small wonder that the gas tax increase is a top priority for the Greater Baltimore Committee and many other business-related advocacy groups.

Critics will claim that such a tax increase wouldn't be necessary if Mr. O'Malley (and his predecessors) hadn't drawn money out of transportation projects to balance the general fund. But that's not true. Those transfers have been largely paid back. Only local transportation aid (also known as highway user revenue) that is not used for state capital projects was reduced permanently — the same fate forced upon all other forms of local aid during the economic downturn.

Could the gas tax be postponed? Of course, but the benefits to the economy would be postponed as well. The problem Maryland faces is that it's been delayed too long already. If the last gasoline tax increase had simply been required to keep pace with inflation, Maryland would have collected $4.4 billion more over the past two decades, and Mr. O'Malley's plan would not be needed.

As the governor's own blue-ribbon commission on transportation finances pointed out last year, Maryland's transportation network is the lifeblood of the state, yet its finances are on the verge of collapse. Merely funding the one top priority of each political subdivision would require $12 billion more in transportation spending.

Convincing lawmakers to approve the tax won't be easy. Republicans and most rural lawmakers are likely to oppose it. Even support from the key jurisdictions of Baltimore City and Montgomery and Prince George's counties is far from automatic. Business leaders will have to stand up and voice their approval. So will many city and county elected leaders.

But at least nobody can accuse Mr. O'Malley of showing political cowardice. His plan is actually more forward-thinking than the commission's proposed 15-cent gas tax hike. By applying a sales tax on a percentage basis, revenues will now rise with inflation (although higher fuel efficiency and reduced demand for gas could offset the effect).

Lawmakers will have to ask themselves, if now is not the time to raise the gas tax, when would it be? When the 2014 election is drawing near? When prices at the pump rise further? When crucial economic development projects like the Red Line are shelved for lack of funds?

Mr. O'Malley seems willing to be flexible. If legislators want transportation funds put in a lock box (requiring a General Assembly super-majority to approve any future transfers), aides say he's ready to sign on. We think that's a bad idea that carries unintended consequences, but at least it would send the message that transportation is a high priority and not a piggy bank.

The fact is, it's time to pay the piper. Higher prices at the pump may be unwanted, but a deteriorating transportation system is costly, too. Not only in mere congestion but also in lost economic opportunity. Raising the gas tax is the right thing to do today if Maryland is to preserve its quality of life tomorrow and for the next generation.

http://www.baltimoresun.com/news/opinion/oped/bs-ed-gas-tax-20120131,0,7529845,print.story

For a look at what types of projects could be impacted by the gas tax, click here.

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