Thursday, November 22, 2012

In Washington state, the gas tax is not a user fee

Over the 2011-2013 biennium Washington state is projected to collect about $2.5 billion in gas tax revenue, or roughly $1.25 billion per year. The state gas tax rate is 37.5 cents per gallon, which means we used 3.3 billion gallons of gasoline last year. For none of that gasoline were drivers required to pay sales tax, depriving the state of more than $800 million in revenue. Why don't we pay sales tax for gasoline in Washington?

The simplest answer is that sales tax has been replaced by the gas tax for this specific consumer good. The state began imposing a gas tax in 1921, starting at one cent per gallon. At the time gasoline cost about 26 cents per gallon. (This pdf has a list of all the Washington state gas tax levels since 1921, and this one has the average national gas price since 1919.) When the State Constitution's 18th amendment passed in 1944, the state gas tax was at 5 cents per gallon. The 18th amendment says the following (paraphrased by the Department of Transportation):

The 18th amendment to the Washington State Constitution dedicates motor fuel tax collections to “highway purposes". Revenue generated from the gas tax is distributed to counties, cities and state accounts. The state receives about half of the total revenues collected. These are the funds which support the WSDOT highway programs as well as the Washington State Ferry System, which is deemed a state highway system by constitution. Highway construction, maintenance, preservation, administration and debt service on highway construction bonds are all funded by these revenues. The other half of the fuel tax revenues are distributed directly to cities, counties and other agencies for roadway programs that are not part of the state highway system.
This means that all gas tax money must be spent on roads, although there is some flex to whether this applies to certain transit programs. At the very least, all of the money must be used for transportation purposes, and certainly the vast majority of transportation dollars are spent on  roadways. In this biennium, for example, the WSDOT's budget is $7 billion, four billion of which is devoted "highway improvements," with another $750 million for "highway preservation." (Less than 10% goes to rail and transit.) Over this two year period, the gas tax barely covers half the cost of highway construction and repair. Worse, this is true despite the fact that we fall further behind on road maintenance every year.

Many drivers feel they "pay their own way" for the infrastructure they use in the form of various taxes, fees, and tolls, but can this really be true when they're exempted from paying normal taxes on the purchase of gasoline? After all, if I buy a new couch at a furniture store, the tax I pay is not earmarked to help me pay for a place to store it. Sales tax paid for a new ink cartridge in my printer isn't earmarked to compensate me for said printer. Perhaps most tellingly, when I buy a bicycle the sales tax on it isn't dedicated to new bike lanes, cycle tracks, pothole repair, or anything else meant to help me get around safely and efficiently. And it probably shouldn't, because it would be extremely limiting to government's ability to decide where the greatest need is, and where the tax proceeds of my purchase should be spent.

As long as gas is exempt from sales tax, drivers can't claim that the gas tax is a "user fee" anymore than the tax I pay on a Subway sandwich is a "user fee." Compare to a true user fee, the tolled road: roads and bridges tend to be free to drive on, but a toll has been added in order to help pay for construction and/or maintenance of the road. A gas tax, on the other hand is not an additional charge placed on top of the cost of driving. Instead, it's a bait-and-switch in which money is effectively taken from the general fund (via lost sales tax revenue) and moved into the motor vehicle fund every time someone purchases gas. This is particularly true now, when, at current gas prices, sales tax or fuel taxes would produce almost exactly the same amount of revenue for the state.

Worse, calling it a "gas tax" gives some drivers the fantasy that they're paying their own way without assistance, when in fact the cost of building and maintaining our road infrastructure falls on everyone. Even if the gas tax actually was a user fee, it wouldn't come close to funding our highway program--even with the addition of vehicle- and driver-related fees--and would need to take money from the general fund (as it does now). And this is fine! Infrastructure is important and should be funded adequately, but when we give certain groups of people the impression that they're the "producers" and everyone else are the "moochers," we end up making infrastructure decisions that aren't in the interest of the cities, the state, or our future, and having unproductive fights about how bicyclists, pedestrians, and transit users are "stealing" money from drivers. 

Likewise, although I don't own a car I still make use of the roads. I take the bus, ride my bicycle, walk, and occasionally get rides from friends or family for more distant events. I'm glad the roads are there (many of them, at least), and happy to pay for my share of them. But with driving on the decline and driverless cars likely to reduce congestion in the future, building more roads is a strategy that favors current drivers at the expense of current non-drivers and the future generations that are forced to maintain or demolish their excess capacity. This isn't intended as a demonization of drivers, it's simply a recognition that they don't warrant any special status, including a sales tax exemption for the product that makes their vehicles run.

A better system would be to stop exempting drivers from sales taxes and devote 100% of gas tax revenues and user fees to maintenance and existing bond repayment. This would have a few key benefits:

  1. State revenue would increase by about $1 billion per year, and could be spent on education, health services, public safety, or whatever's needed, including transportation;
  2. We'd be performing some minimum level of road maintenance that is clearly not being met currently, and tends not to be considered in the total cost of road construction;
  3. We'd be less likely to continue accumulating infrastructure that isn't going to be useful in the future;
  4. The remaining transportation budget could be spent rationally, since none of it was coming exclusively from drivers or devoted exclusively to them; and
  5. Consumption of gasoline would be discouraged further.
Then, of course, there are downstream benefits of this, like better transit service, less pollution and congestion, healthier people, and all the other things that come with less auto-oriented places and more spending on social services. 

Now, reinstating the sales tax is probably something that couldn't happen without a repeal of the 18th amendment which, unfortunately, seems very unlikely. But it doesn't mean we should just accept this destructive and misleading status quo, either. Even without removing gasoline's sales tax exemption we could dedicate all gas tax revenue to maintenance, for example. We could still raise the fuel tax, which historically has been closer to 20% of the cost of gasoline, rather than the current ~10%. And most importantly we can make it clear that everyone helps pay for transportation infrastructure, and all of our voices matter in the decision-making process--including those who are going to have to live with (and pay for) the consequences in years to come. Compared to everyone else, those who drive the most don't contribute more to the state's budget--they just contribute in a different form--and they shouldn't receive any special subsidies or elevated stature because of it.


  1. I don't follow your logic. I pay the fuel tax, which is necessarily applied to building/maintenance of transportation purposes including roads. I use the road. It logically follows that I have "paid my way" to use the road. The idea that a driver is not paying his/her way because the tax is not a general one makes no sense. It's still a tax, and in this case it IS specifically earmarked for infrastructure. No?

    1. Most of our existing roads are built with property tax, or were built with federal grants. We've never come close to paying the cost of maintaining, much less eventually replacing, the roads we're using.

      A user fee is something paid at the time of use for the actual cost of what you're using. You pay the same amount of gas tax per mile (depending on your car) whether you're on a billion dollar mile of freeway or a ten million dollar mile of local street. The amount you're paying doesn't reflect the cost of what you're using at the time. That's also why congestion happens on freeways - you're getting more subsidy going on the freeway, so people overuse it. Works just like the rest of economics.

  2. To think gas should be double taxed is absurd. The gas tax is a dedicated tax and having it separated from a general sales tax allows the percentage rate to be higher than a sales tax rate. To think that gas should have sales tax and a gas tax identifies you as a far leftist tax and spend government supporter, which according to your education plans indicates your career path. If you want to be just another bureaucrat just remember, it isn't your money and it isn't the states rightful money. It came from hardworking people who are forced to pay it.

    1. Thanks for that valuable input Dale. I'll advocate for gas taxes not being except from sales tax, and you can advocate for gas taxes being set at a level that fully captures the economic, social, and environmental cost of vehicle use and emissions. We'll see which comes out to the lower amount.

  3. Thank you for your research it answered the question I had regarding annual tax dollars coming from our gas tax. Your article did invoke some emotion from me however, so I'll can consider it a form of art. I cannot agree with you on adding sales tax on top of gas tax. It is my opinion that the money they are already getting is not being spent responsibly. U.S. Department of Labor has Washington listed in the top 5 for the average income for road construction workers. Here are some questions this brings me to. Why does Washington have a higher average wage? Is the work more dangerous here? Does them average skill level correspond to the average wage? Does the cost of living play a factor?

    Lets briefly discuss the whole Alaska Way Viaduct. There were two options that were brought to the people and neither got public yet they continued and chose the option that was least popular. I just can't endorse any additional taxes when the public has no authority over how the money is spent.

    Thank you again.