Driving still a historical bargain after Maryland gas tax hike

There is much hand-wringing over the proposed Maryland gas sales tax, but when you adjust for inflation and look at the costs to drivers per mile, the taxes the government collects on gas will still remain very near their historical low.

We charge a gas tax, ostensibly to pay for transportation, that you pay based on how much driving you do. But because of increased fuel efficiency in cars and an unwillingness to tie the tax to inflation, the tax is not consistent per mile of driving every year.

In fact, after an initial increase in the gasoline tax’s first years in Maryland, the tax was consistently above $0.03 per mile (all values in 2009 dollars) for 50 years. In the 1970’s however, rapid increases in fuel efficiency and inflation rates cut that in half by 1981. It would never go above $0.025 again. This year, the tax is lower than it’s been in 90 years: $0.01233.

But wait, there’s more to this bargain: the federal gas tax this year is below a penny per mile for only the 8th time in history.

The proposed tax increase could “add 20 cents” to a gallon of gas, but that wouldn’t even double the tax per mile of driving. In 2016, the year the tax would fully phase in, the tax per mile would be only $0.02113. This would be the highest rate since 1978, but well below the historic high of $0.04684 per mile. And also below the historic average of $0.02759. (Note: After publishing, numbers in this paragraph were modified to address a transcription error)

The chart below combines the Maryland state gas tax per year, the inflation rate according to the Bureau of Labor Statistics, and average US fleet efficiency per year from M. Sivak and B. Schoettle.

For future years it assumes a worst-case tax increase, expected inflation, and fuel efficiency increasing each year at the same pace as the preceding 10 years. The final assumption is likely a conservative estimate due to new CAFE standards set to go in effect by 2017. Furthermore, the tax would look even cheaper, compared to historic averages, for those who drive cars as opposed to light trucks because the fuel efficiency of cars has increased faster.

The federal tax is far below its average as well.

So while the increase in the gasoline tax might seem large per gallon, the tax drivers pay per mile is still an incredible bargain compared to what drivers paid as recently as the 1990’s. Claims that Maryland is “pricing middle-class families, and certainly the working-class poor, out of” the state are clearly overblown.