This Washington

Report: States Should Index Gas Taxes to Inflation

By Erica C. Barnett January 31, 2012

A new report from the nonpartisan Institute on Taxation and Economic Policy finds that most states (though, interestingly, not Washington State) have failed to increase gas taxes enough to keep up with inflation, resulting in a tax base that has consistently declined each year, even as the cost to fix states' transportation infrastructure has increased.

(Washington State, of course, has seen a decline in overall gas tax revenues, but that drop is due to the fact that people are driving less, not the gas tax rate. Had the state not increased gas taxes, obviously, the decline in revenues would be more severe).

On average, adjusted for the growth in transportation construction expenses, the average state's gas tax has fallen by 20 percent, or 6.8 cents a gallon, since the last time it was raised. Nationwide, 36 states (including Washington) have a fixed gas tax that does not automatically increase with inflation. Among those states, gas taxes have effectively fallen 29 percent, or 9.5 cents a gallon, since the last time they were raised.

"If every state updated its gas tax rate to match the level of purchasing power it had the last time it was raised, state gas tax revenues would be roughly $10 billion higher per year. Put another way, states have seen their gas taxes plummet by a combined $10 billion due to their failure to plan for inevitable increases in the cost of transportation construction," the report concludes.

The report recommends that states increase gas taxes in the short term to help solve the immediate problem, and reform state gas taxes in the long term so that they grow over time.
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