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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.


Photo by johnwilliamsphd on Flickr.

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.


Maryland gas tax over time. Graphs by the author.

The federal tax is far below its average as well.


Federal gas tax over time.

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.

David Cranor is an operations engineer. A former Peace Corps Volunteer and former Texan (where he wrote for the Daily Texan), he's lived in the DC area since 1997. David is a cycling advocate who serves on the Bicycle Advisory Committee for DC.  

Comments

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I'm not sure of the value of coming up a "per mile" taxation scheme here.

20 cents more in tax isn't bad. The market can easily go up and down 10 cents in a few months, and 20 cents in a year isn't unheard of.

But yes, when I start to see people come up this crazy schemes I look for my wallet. $4 gas is cheap. $5 is cheap. It is an amazing fuel and can do amazing things. People are willing to pay $10 a gallon for it in Europe.

by charlie on Mar 25, 2013 10:30 am • linkreport

Not just overblown, completely bogus

by SJE on Mar 25, 2013 10:42 am • linkreport

The first graph would be even more stark if you subtract the value of the sales tax exemption.

When the sales tax rate was 3% and the gas tax was (in effect) 10-15%, the sales tax exemption had a modest effect and might have been justified by the benefits of a functioning highway system. Now that the sales tax is 6%, the net gas tax (i.e. the extent to which the gas tax exceeds the sales tax people pay on all goods other than food) is really tiny.

by JimT on Mar 25, 2013 10:55 am • linkreport

47 cents per mile! I think you are missing some 0s in paragraph five's numbers.

by speaketh on Mar 25, 2013 11:03 am • linkreport

"I'm not sure of the value of coming up a "per mile" taxation scheme here. "

Its completely relevant. The improvement in MPG over the years has impacted gas tax revenues.

by AWalkerInTheCity on Mar 25, 2013 11:16 am • linkreport

The Get Maryland Moving coalition has an interesting graphic about the gas tax at
http://www.getmarylandmoving.org/wp-content/uploads/2013/03/gas-prices-website4.png

They show that the cost of a gallon of gas varied by up to 40 cents per gallon at different gas stations on the same day in the same county. The seasonal variation is 50-70 cents per gallon.

The notion that the slight increase in cost from the new tax will be unbearable is absurd - it will barely be noticed among all the other price variations we see.

by Wayne Phyillaier on Mar 25, 2013 11:19 am • linkreport

It's interesting because you could argue that a gas tax is potentially regressive where there are not other reasonable transportation options. I don't really see a way around raising the gas tax though and I think doing so has some positive externalities. Would be great to see money going to local transit around the country.

by Alan B. on Mar 25, 2013 11:21 am • linkreport

@AWalkerInTheCity; you are leaving out population growth.

+1 Wayne. You could also just stagger the increase over a few months.

by charlie on Mar 25, 2013 11:35 am • linkreport

@charlie: It is staggered--over three years. The gas sales tax will be 1% for a year, then 2%, and only get to 3% in the third year.

by Gray on Mar 25, 2013 11:53 am • linkreport

Nice job: looking at mileage and inflation does a nice job of accounting for the wear and tear and the cost of road maintenance. But incomplete, because it does not account for vehicle weight.

by goldfish on Mar 25, 2013 11:59 am • linkreport

@Gray, thanks. Yep, it won't be fun paying but pretty unremakable in terms of market fluctuations.

by charlie on Mar 25, 2013 11:59 am • linkreport

Per mile makes complete sense. The gas tax is meant to pay for roads, and so the more you drive, the more you pay. Now that cars get better mileage (or are entirely electric), but still do the same damage to the road, the gas tax is even lower than before.

Personally, I would like to supplement/replace the gas tax with something based on the odometer and weight of the vehicle, now that I find that that system works well in other countries.

by SJE on Mar 25, 2013 12:09 pm • linkreport

Somehow we have gotten to where even a small increase in the gas tax generates the most over the top claims of doom. The price of gas has swung up and down far more in the past year than the MD tax will add. The additional tax is still a small percentage of what people pay at the pump, for car maintenance, insurance, the cost of a car. This is also an avoidable tax to some extent for most people. Someone upset about the added cost to gas tax a choice to drive more fuel efficiently, keep the tires properly inflated, and when the time comes to buy a new vehicle, buy one that is more fuel efficient. Or take transit.

In the longer run, the gas tax increase is of course an interim fix. As cars get better gas mileage, plug-in hybrids and EVs become more widespread, a new mechanism to pay for roads and transportation will have to be devised. VMT or a lot more road tolls. That is going be a long heated political battle when the revenue from gas taxes falls off too much.

by AlanF on Mar 25, 2013 12:20 pm • linkreport

Since 1980, the fleet fuel economy (weighted car and truck average) has increased from about 19 mpg to about 23.5 in 2012, and increase of of 24%. Over that same period, the fleet average curb weight has increased from 3200 top 4000 lb, a similar increase.

However, we all know that road damage scales by weight to the fourth power. Using vehicle averages (not correct, because the weight distribution should be used), the weight increase will cause 2.44 as much damage know as it did in 1980.

Data: http://www.epa.gov/oms/fetrends.htm#report

by goldfish on Mar 25, 2013 12:33 pm • linkreport

For the ultimate in overblown complaints, read the comments in this article from the Patch.

The new Maryland transportation bill will raise the registration fee, paid once every two years, by $3.50 to pay for increased costs of helicopters that rescue auto crash victims. That's $1.75 per year, or about one penny every other day. Two different commenters call this a "rape" of the taxpayer.

by Ben Ross on Mar 25, 2013 12:51 pm • linkreport

Speaketh, your right. That whole paragraph has left out zeros. Will fix when I get a chance.

by David C on Mar 25, 2013 12:52 pm • linkreport

"It's interesting because you could argue that a gas tax is potentially regressive where there are not other reasonable transportation options. I don't really see a way around raising the gas tax though and I think doing so has some positive externalities. Would be great to see money going to local transit around the country.

by Alan B. on Mar 25, 2013 11:21 am"

"Per mile makes complete sense. The gas tax is meant to pay for roads, and so the more you drive, the more you pay. Now that cars get better mileage (or are entirely electric), but still do the same damage to the road, the gas tax is even lower than before.....

by SJE on Mar 25, 2013 12:09 pm

A gas tax is extremely regressive. I don't think there is another way to argue it. Those most dependent on cars are those who live in areas that are not well served by transit or folks who actually make their living driving. Even when you're looking at vacation travel -- the rich fly to far-off locales, and the less well-off drive to not so far-off locales. A gas tax is far from a progressively ideal form of taxation.

As for the increase in hybrids and electrics, they tip the balance in farther in the wrong direction. They're expensive and typically purchased by those who are relatively well-off....and it creates a free-loader problem, where those cars still use the road, but aren't paying much if anything towards the maintenance of the roads.

In fact, this points up a real problem in the per mile argument. As we get more hybrids and electrics on the road, the tax will seem to dip ever lower in terms of miles driven. The realized increased efficiency will increasingly be for a selected group. However, for just those who actually buy a lot of gas (who can't afford or can't rely on an electric or hybrid), the rate per mile driven will actually keep climbing, as they pay higher rates and an ever greater share of the tax collected.

by Fischy (Ed F.) on Mar 25, 2013 1:13 pm • linkreport

In other words, the rich keep getting richer, with policies that appeal to them, whereas the poor and the powerless keep getting left out of the discussion.

by Fischy (Ed F.) on Mar 25, 2013 1:16 pm • linkreport

I thought the word on maryland was that its taxes were too progressive and its social welfare to generous, and thats why Va does better? Why does this argument come up mostly about the gas tax? the gas tax is not in isolation, but is part of a broader tax policy.

If one is concerned about the regressivity of the gas tax, one could easily offset that by making the income tax more progressive.

by AWalkerInTheCity on Mar 25, 2013 1:30 pm • linkreport

At the end of the day the dollars from this gas tax can be raided and used for non-transportation purposes. Who's idea was that? To me that's the dialogue that's missing from the conversation. What good is this bill to anyone if the money is diverted elsewhere?

by Brother Cue on Mar 25, 2013 1:42 pm • linkreport

@Fischy: A gas tax probably would be regressive if it were really a tax. But for all practical purposes, it is a user fee, which will still not cover all of the costs of maintaining highways even when the increase is completely implemented. So raising the gas tax is more analogous to cutting certain types of subsidies for farmers, which disproportionately affect the poor over the wealthy farmers.

That said, you are correct that over time, as plug-in hybrids and electric vehicles come to occupy a significant share, the gas tax will become a regressive way for funding highway construction. VMT tax is one possibility, though I would prefer an energy tax with some portion of the proceeds going to highways.

by JimT on Mar 25, 2013 1:43 pm • linkreport

@Brother Cue: Well for one thing, the subsidy from the general fund to the highway trust fund is about an order of magnitude greater than what he general fund borrowwed and later paid back. And this bill proposes to actually increase that subsidy, by allocating a fraction of internet taxes.

People are so used to the general fund giving extra money for transportation that they get bent out of shape when just a lttle bit of that money is needed for something else. Like when my 5-year old daughter complains that she is tired of subsidizing me (I have no idea how she learned that word).

by JimT on Mar 25, 2013 1:49 pm • linkreport

Could someone elaborate on the VMT experiences, specifically for private passenger vehicles, elsewhere? I've heard it mentioned that some places have been successful, but the whole scheme sounds rather overly complex to me.

by Alan B. on Mar 25, 2013 1:58 pm • linkreport

you are correct that over time, as plug-in hybrids and electric vehicles come to occupy a significant share

I have my doubts about this. How many electric cars have been sold? Last I looked, they are not practical because of the long charging time, small range, and the lack of infrastructure to support them. In 30 years, maybe, but certainly not many of these will be sold in the next 10-15 years.

Newly introduced electric vehicles made a publicity splash about two years ago, and I even saw one driving around my neighborhood. I do not see it anymore.

by goldfish on Mar 25, 2013 2:00 pm • linkreport

@JimT: are you referring to General Fund subsidization at the Federal level or the State level? The Federal level transfers are well known, but I was under the impression that MD's general fund did not subsidize state transportation. Got any numbers/sources?

by Froggie on Mar 25, 2013 2:28 pm • linkreport

@Froggie: I mean at the state level. Last time I checked the annual report of the Transportation Trust Fund, the general fund's subsidy accounted for about half the money going into that trust fund.

But they don't call the subsidy a subsidy. Would you, if you were running the trust fund? You would want that money for your program, so the last thing you are going to call it is a legislatively mandated subsidy from the general fund.

1. The 6% sales and use tax new and used autos goes to the trust fund. That's about 25% of its revenues.
2. All state taxes collected on gasoline go to the trust fund as well. Before the trust funds was created, sales tax on gas went to the general fund.

So if you spend $1000 on a bicycles, clothes, or meals, then $60 goes to the general fund. But spend that $1000 on a car (or gasoline) and the $60 instead goes to the transportation trust fund (a little bit more in the case of gas).

by JimT on Mar 25, 2013 2:50 pm • linkreport

I drive 80 miles a week. Yes, money is tight, but at 25 miles per gallon (conservative estimate), I am looking at paying just under $35 extra for the year. Every time I drive out of Baltimore City (or even through Baltimore City), I can tell the roads really need it.

by Weiwen on Mar 25, 2013 2:58 pm • linkreport

@Fischy

Just because it is not progressive doesn't mean it is terrible. This is a tax on people who use more of a good (roads) and cause more damage to roads and the environment (heavier, less fuel efficient cars.) Poor people can choose to live in places where they can take a bus, or they can choose to live far from work. In that second case, they will be paying a bit more. This is a user fee, and is as good as we are going to get in the next few years.

@AlanF

I totally agree. This will be an unnoticeable change in the price of gas. Big loser with this bill is gas station owners and the big multi-national oil companies. I just drove to SC for a wedding this weekend, and found that gas prices in NC were virtually identical to gas prices in VA, despite NC having .20c higher gas taxes. All this bill will do is mean that when you buy a gallon of gas, Exxon gets a bit less in profit, and the State of MD gets a bit more to spend on roads. Win win.

by Kyle-W on Mar 25, 2013 3:34 pm • linkreport

Due to all the law of unintended consequences, it would be nice to see a thorough accounting of all costs directly associated with the price of gasoline.

by Thayer-d on Mar 25, 2013 4:26 pm • linkreport

Fischy, I don't see how the gas tax is extremely regressive.

The poorest people in Maryland don't own cars. The poorest people in Maryland do pay sales tax on their purchases (typically a larger part of their income than other groups), which goes into the general fund, which is used to subsidize cars. By contrast, gas is exempt from sales tax as if it is some public good that we want to subsidize (e.g pencils for elementary school are taxed).

Now, if you HAVE a car, it currently only asks you to pay for a small fraction of the services you consume. The remainder comes out of general revenue.

by SJE on Mar 25, 2013 4:57 pm • linkreport

A lot of the working poor outside of cities have schedules or work locations that are not well served by transit. Obviously the poorest of the poor do not have cars but many of the bottom 25% or so also save up their change every month to buy gas for their beaters. Sadly having a car or at least access to a ride can be a barrier to entry in many job markets. My preferred solution is still more gas tax, more transit, and maybe higher sales tax on new cars.

by Alan B. on Mar 25, 2013 5:16 pm • linkreport

Alan B: part of the problem is that we have been subsidizing cars, and underinvesting in alternatives, and we end up in situations where a lot of people HAVE to have a car. The first part of fixing that problem is to stop doing the stupid things that led us there.

I also somewhat disagree with the poor= living far out, with bad transit. Yes, the burbs are poorly served by transit. Part of that is chicken and egg. But part of it is the definition of poor: people want a certain standard of living, and move further out to get that. But that is THEIR choice. Why should we subsidize it?

A related issue is willingness to think outside the box. I know plenty of poor people who will wait ages for a bus, or keep a huge car, instead of walk, or ride a bike. These are the same people who wait for an elevator instead of taking the stairs. These are choices, not fixed barriers.

by SJE on Mar 25, 2013 5:50 pm • linkreport

Ed F. -- the issue with regressive taxes isn't to complain about them per se, it's to provide options for assistance, if deemed publicly worthwhile, for people of lesser economic means, not to do nothing, or to junk the policy.

But people against taxes for other reasons seize on the issue of purported equity to derail the overall effort completely.

The gas tax is probably the most minimal cost of owning a car, and arguably, providing financial assistance to the poor to pay for it (a tax credit) is probably unreasonable.

by Richard Layman on Mar 25, 2013 6:36 pm • linkreport

People's choices do have ramifications on other people though, which is why we should be strongly in favor of subsidizing those choices that favor the public good, including economically. Paying more for gas would make more people aware of the effect thero choice has on others and ultimatle themselves.

by Thayer-d on Mar 26, 2013 4:31 am • linkreport

Being dismissive of the added burden this tax will have on the less well paid people is not helpful or useful. Yes, the guys driving a recycled CrownVic police cruiser to a job at McDonald's in the exurbs are going to get hit by this, and there is no denying this.

But on the other hand, the lip service of "providing tax credits" to such people is nonsense, because it will never happen. The the questions involved are much too complicated and political process is far too tortured. To suggest this is an anodyne for those that want a tax increase, but don't want to admit that it will hurt some people.

For those that absolutely need to drive and can only afford a beater, the answer that the tax increase will provide for needed maintenance and new construction, reducing congestion and save them time. It is worth it.

by goldfish on Mar 26, 2013 9:34 am • linkreport

@Alan B

I completely agree! Lets devote 100% of the increase to mass transit to get these people to a place where they DO have bus service available. Granted, that means nothing goes to roads, so the increase would have to be larger, but that should have happened anyways. 3% sales tax (or maybe 5%, depending on internet legislation passing, which it wont) and indexing the gas tax to inflation is a pittance. Should have been the whole 6% straight away. Gas goes up a quarter tomorrow morning, and people forget about it by this fall.

by Kyle-W on Mar 26, 2013 9:50 am • linkreport

The gas tax needs to be increased in $1 increments and brake jobs taxed $100 per axle until the majority of Massholes stop racing one another to every traffic control device.

by aloysious farquart on Mar 26, 2013 11:02 am • linkreport

it would be nice to see a thorough accounting of all costs directly associated with the price of gasoline.

For every dollar spent on gasoline...

Taxes: 13 cents
Distribution and Marketing: 8 cents
Refining: 14 cents
Crude oil: 65 cents

by David C on Mar 26, 2013 11:42 am • linkreport

In other words, the rich keep getting richer, with policies that appeal to them, whereas the poor and the powerless keep getting left out of the discussion.

This whole discussion of the regressivenes of the tax is probably a red herring..

But people against taxes for other reasons seize on the issue of purported equity to derail the overall effort completely.

yes. this.

Still, it is a somewhat valid point. The issue is we have several concepts that most Americans agree with.

1. We need government to do things, and that costs money which we should get from taxing.

2. Taxes should be progressive. Thee working poor should a smaller percentage of their income/wealth in taxes, while the wealthier pay more

3. Taxes should be pigovian. People should pay a tax on doing things with negative externalities (like polluting or smoking) but no those with positive externalities like going to college.

4. Taxes should be use based. People who use something more, should pay more it.

The issue of course, is that some of these ideals are in contrast with others. If you tax the wealthy, you're often taxing investment, saving, working, etc... If you tax pollution, that's almost always regressive, as is taxing use. So let's agree that every tax is in contrast with one or more of these principles, which means it is always possible to oppose any tax.

"Increase the gas tax? Too regressive."

"Increase the income tax? And punish hard work?"

Etc...

There are ways to fix this though.

1. Pass a large number of pivgovian taxes. Tax pollution, CO2 emissions, smoking, alcohol, etc...
2. Increases taxes on wealth such as property taxes, inheritance taxes, capital gains, income above some level etc...
3. Get rid of consumption taxes like the sales tax
4. Increase the Earned Income Tax Credit, to offset the regressive nature of the pigovian taxes.
5. Ignore the use element to some extent, since we all benefit from libraries, schools, roads, parks etc... but capture it as needed to reduce over use. So institute congestion charges (which are really pivgovian) or user fees at popular parks.

But that's a whole tax reform system that I suspect one or both parties would oppose. Still, unless you're complaining about all of this at once, your motives are suspect.

by David C on Mar 26, 2013 12:00 pm • linkreport

The definition of "cost" seems to be limited and not a real world definition. In the real world, most (not all, that's for sure) pay for auto insurance, registration costs, driver's license costs, and in VA, isn't there are personal property tax on personal motor vehicles as well? I don't know if MD does or not.

If you don't purchase a vehicle for cash, you're paying interest as well. Since car sales seems to be the new subprime, the lower your credit rating, the higher your rate of interest when purchasing a new (or newer) vehicle.

All those costs increase the "cost of driving" significantly. Again, perhaps more for low income people, since they may have a lower credit rating (leading to potentially higher insurance premiums) and are more likely to pay subprime interest rates for a car loan.

A good mass transit system is a better deal for most, particularly w/the growth of zipcars and other means of renting a vehicle just when you need one or want one.

by azure on Mar 26, 2013 12:13 pm • linkreport

@azure, as long as you are tallying the sundry costs of owning a car, and comparing that expense to "a good mass transit system," you should also include the value of one's time waiting for the bus.

by goldfish on Mar 26, 2013 12:21 pm • linkreport

azure, my response was to the cost of gasoline, not driving. But the cost of driving is pretty easy to find.

by David C on Mar 26, 2013 12:40 pm • linkreport

@Goldfish

A lot of people tend to vastly overstate the value of their time. A good friend, who makes roughly 33k exempt, didn't think it was worth his "time" to send in an $8 rebate. Would it have possibly taken him more than a half hour to figure out the form, find a letter and stamp, and mail it in, perhaps. Should he still have done the rebate as it was a net positive? Absolutely.

by Kyle-W on Mar 26, 2013 3:11 pm • linkreport

"I also somewhat disagree with the poor= living far out, with bad transit. Yes, the burbs are poorly served by transit. Part of that is chicken and egg. But part of it is the definition of poor: people want a certain standard of living, and move further out to get that. But that is THEIR choice. Why should we subsidize it?"

Um.... OK. The nerve of those poor people trying to raise families in decent neighborhoods! Why can't they stay in the projects where they belong?

by Chris S. on Mar 26, 2013 6:59 pm • linkreport

Urban anti car activists in DC want families in rural parts of Maryland to subsidize transit.

Cars and driving are vital to the Nation's economy. Without people in rural america who NEED to drive, all the DC urbanites would starve.

by Rick on Mar 27, 2013 6:33 pm • linkreport

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