In October 2021, both Alabama and Missouri raised their gas taxes to cover increasing road maintenance costs. Both increases passed with bipartisan support under Republican-controlled legislatures. Unfortunately, these tax increases will dramatically hurt low-income residents who will spend a higher percentage of their income than their wealthier counterparts on fueling up. A more equitable path forward would be for state governments to tax drivers per mile they drive rather than the fuel they purchase.
Gas taxes allow states and the federal government to raise funds to help maintain roads and highways. The gas tax can be viewed as a fee for the privilege of using a public and rivalrous good, where a consumer’s use of it impacts other consumers’ ability to use the same good. After all, the more you use a road, the more maintenance will be required. The federal government currently imposes an 18.4 cents per gallon gas tax on regular gasoline, and all 50 states impose a gas tax, with California’s being the highest at 67 cents per gallon.
These gas taxes, however, still fail to provide adequate funding for highway maintenance. The American Society of Civil Engineers (ASCE) estimates that due to inflation, the purchasing power of the gas tax has decreased by 40%. ASCE notes that 43% of America’s public roads are in poor or average condition and that it would cost $786 billion to improve the quality of the nation’s roads. The trend towards more and larger cars on the roads has made the situation worse.
Poorly maintained roads harm consumers through higher vehicle maintenance costs, hurting lower-income drivers. In California alone, poorly maintained roads cost the state’s drivers approximately $53.6 billion per year. While high-income drivers can afford to keep their vehicles in good condition, lower-income Americans are often not able to meet these financial obligations and are left with expensive repair bills and dangerous cars.
The problem with gas taxes, however, is that they are deeply regressive. Drivers whose income is lower than $20,000 annually can pay close to 2% of their total income on gas taxes, while drivers who make between $100,000 and $150,000 annually pay closer to 0.4% of their income on gas taxes. Evidently, these taxes make up a higher proportion of income for lower-income drivers than for those who earn more.
Electric Vehicle (EV) owners specifically are exempt from paying the gas tax. While their cars may not require gasoline to run, electric vehicles still cause roads to deteriorate. This loophole creates a situation where EV drivers contribute to a problem but do not pay their fair share. This discrepancy worsens given EV owners are far wealthier than the average petroleum car owner, making the tax’s regressive nature even more apparent. The median income of electric vehicle buyers in California is $150,000, compared with $90,000 for gasoline vehicle buyers. This is indicative that the tax is levied on all lower-income individuals but not on all wealthier individuals.
Recognizing the regressive nature of the gas tax and the loopholes that enable EV drivers to avoid paying, it becomes further evident that a gas tax is an ineffective and regressive method of raising revenue and supporting highway maintenance.
A better and more efficient way would be for state legislatures and the federal government to implement a per-mile user fee, which would charge drivers based on how many miles they drive. A per-mile user fee would be a much fairer model of highway maintenance since all users would be paying a fee for what they are using directly, and no car category would be exempt. In addition, under a per-mile user fee EV owners would not be paying less than a petroleum car.
A per-mile user fee also avoids the bureaucratic mess of raising the tax every few years to keep up with changes in usage. Instead, the tax will always collect a fee relative to what is being used, meaning roads can be better maintained. The American Jobs Plan has called for studies into the gas tax, and this per-mile model should be given serious consideration. Pegging the per-mile user fee to inflation would also help ensure that it raises an adequate amount of revenue each year.
The recent increases in the gas tax in Missouri and Alabama are especially harmful to low-income consumers. Instead of pursuing these regressive policies to pay for stimulus, states should adopt a tax that better achieves the intended purpose of gas taxes, which is to make drivers help pair for road maintenance costs.
Per-mile user fees would be a viable alternative to provide all levels of governments with the funds needed to maintain their roads without hurting any group of consumers. States should prioritize consumers and scrap regressive tax policies.
Caroline Wang is a Policy Intern at the American Consumer Institute, a nonprofit educational and research organization. For more information about the Institute, visit www.TheAmericanConsumer.org or follow us on Twitter @ConsumerPal