Taxes on motor vehicle fuel are a main staple of transportation funding for the federal government and for most state governments. States impose two types of gas taxes-excise taxes and sales taxes. Excise taxes are fixed rates on each gallon of gas that are imposed on oil distributors or suppliers, not directly on gasoline purchasers or consumers However, it is very difficult for lawmakers in most jurisdictions to muster the political support necessary to raise gas taxes sufficiently to cover inflation. Since 1997, only 14 states have raised the excise tax on motor vehicle fuel. The increase for those states averaged only 4 cents per gallon. In every example, strong bipartisan support was needed to pass an increase through the legislature. As gasoline prices soared in the latter half of 2005, however, much of the support for gas taxes has eroded.
Following the devastation caused by Hurricane Katrina in August 2005, lawmakers in many states-including Alaska, Hawaii, Idaho, Illinois, Maine, Maryland, Missouri, Montana, North Carolina, Pennsylvania, Texas, Washington, West Virginia, Wisconsin and others-called for the suspension of state gas taxes to ease the burden on motorists caused by rising fuel prices. In September 2005, Georgia Governor Sonny Perdue signed an executive order that suspended for one month collection of the state 7.5 cent per gallon excise tax on motor fuel and a 4 percent sales tax on gas.
Although it is appealing for lawmakers to attempt to ease the burden on families caused by soaring gasoline prices, gas tax suspensions can dramatically affect transportation funding and may not even benefit consumers. In Georgia, state officials estimated that the one-month moratorium on gas taxes cost the state $75 million, but it is unclear whether that savings was passed along to motorists For consumers to benefit from a moratorium on motor vehicle excise taxes, the oil or gas supplier must be willing to pass along the savings.
Because much of the 2005 growth is gasoline prices was not related to state taxes, it is unlikely that savings from excise tax suspensions will be passed along to consumers. According to a brief from the Center on Budget and Policy Priorities, in July 2005, before Hurricane Katrina, less than one-fifth of the price of a gallon of gas was represented by state and federal taxes.15 Following the hurricane, that percentage was even lower.
In addition to excise taxes, nine states-California, Delaware, Georgia, Hawaii, Illinois, Indiana, Michigan, New York and West Virginia-also collect taxes on motor vehicle fuel sales or gross receipts.16 These taxes are imposed as a percentage of the retail price per gallon of gasoline. As with the excise tax, it is not clear that a moratorium on retail sales taxes would automatically be passed along to the consumer.