Don’t tax you, don’t tax me, tax that fellow behind the tree.
This quip, made by Louisiana Sen. Russell Long, captures Utah’s approach to the motor fuel tax. We’ve been kicking the can down the road for 17 years. It’s time for a serious and informed discussion about raising Utah’s motor fuel tax to make up for lost purchasing power and improved fuel efficiency.
I’m not alone in this viewpoint. Several conservative legislators, like Sen. John Valentine, R-Orem, Rep. Jim Nielson, R-Bountiful, and Rep. Johnny Anderson, R-Taylorsville, have proposed changes to Utah’s gas tax this session. And with good reason. Unlike sales or income taxes, which increase with the price level, the motor fuel tax loses purchasing power over time because it is a per-gallon tax. In inflation-adjusted terms it’s dropped from 24.5 cents per gallon in 1997 (the last time it was raised) to 16.9 cents per gallon today, a 45 percent loss in buying power.
Making matters worse, passenger cars are becoming more fuel-efficient — a good thing except when it comes to paying for the impacts. For every gallon consumed, more wear and tear is placed on the roads. The average fuel efficiency of U.S. passenger cars has increased from 28.7 miles per gallon in 1997 to 35.6 today.
Bottom line: You have to periodically raise the motor fuel tax just to stay even. Staying even is not a tax increase.
And let’s be honest. We have to do a lot more than stay even. Utah’s population grows by approximately 50,000 people each year. Ninety-one percent of Utahns live in urban settings. We have urban problems like traffic congestion and air pollution. If we don’t take care of our road maintenance needs we increase our costs in the future. We must make mighty investments in transportation to support commerce and maintain our life quality.
The Utah Legislature understands this. They’ve invested substantially in Legacy Parkway, I-15 in Davis, Salt Lake and Utah Counties and other projects throughout the state.
But it’s come at a cost.
We’ve borrowed huge sums of money increasing our net general obligation debt per capita from $434 just five years ago to $1,161 today. Today our debt ratio is second highest among Moody’s AAA-rated states. This year in the Transportation Investment Fund we will spend more money on debt service than on projects. We can’t borrow more and remain fiscally responsible.
We’ve also earmarked record amounts of sales tax to transportation projects. In 1997, the state earmarked less than $10 million of sales tax revenue. Today, we earmark over $450 million. We can’t earmark any more and adequately fund other needs.
That leaves us with four options: do without (not a good choice for the economy), take from other government services like education (ill-advised when investment is already low), raise general taxes (poor choice in an uncertain economy) or adjust the motor fuel tax to recover lost purchasing power.
Raising the motor fuel tax is by far the best option.
The motor fuel tax is a user fee. Unlike most government services, transportation is metered at every pump. It you drive more, you pay more. That’s fair. If you pay more, you are incentivized to use less — a good thing for congestion and air quality. Such is the magic of a user fee. It brings the power of market forces to the provision of government services.
Some will say the motor fuel tax is a dying revenue. I disagree. It’s only dying if the Legislature refuses to act. Some will say motor fuel taxes hurt low-income families. Let’s find other ways to help them. Some will say it’s an election year and the Legislature won’t entertain a tax increase. Maybe so, but when you kick the can down the road the pile gets bigger and bigger.
The Utah economy benefits from transportation infrastructure. We need to have the foresight to have users pay for it.
Natalie Gochnour is an associate dean in the David Eccles School of Business at the University of Utah and chief economist for the Salt Lake Chamber.