The most common method of increasing revenue through the gas tax is with an increase of the fuel excise tax. Through this option, the state raises the flat tax rate on each gallon of motor vehicle fuel. The advantage is that even small fuel tax increases can generate significant revenue for transportation programs. Motorists consumed more than 1.74 trillion gallons of motor fuel in 2003. A 1-cent increase in taxes on that motor vehicle fuel would have generated $17.4 billion in additional transportation revenue in the United States.
Gas tax increases to fund transportation often are viewed as more equitable than other new revenue mechanisms. Motor fuel excise taxes are a "user fee" that puts the burden for funding transportation squarely on the people who use it the most. The more motor vehicle fuel a motorist uses by traveling on roads and highways in the state, the more that motorist will pay for the system in gas tax revenue.
Motor fuel excise taxes are assessed as a flat fee on each gallon of fuel, and fluctuations in motor fuel prices do not affect the amount of tax collected by the state. In fact, as motor fuel prices rise, the motor fuel excise tax becomes a smaller percentage of the total cost of a gallon of motor fuel. Because motor fuel prices change so often naturally, there is little public recognition at the pump when motor fuel excise taxes are changed or imposed by legislative action.
The disadvantage of relying on motor vehicle fuel excise tax increases to fund transportation is the political challenge of the tax increase. Because these taxes are not elastic, they lose value against inflation every day; however, new or higher taxes are never popular. Many proposals to increase gas taxes have been defeated in state legislatures or by citizen initiatives, and most states have been unable to adjust rates quickly enough to match inflation.
Since 1997, legislatures in 14 states-Arkansas, Indiana, Kansas (twice), Maine (twice), Michigan, North Dakota (twice), Ohio, Pennsylvania, Rhode Island, South Dakota (twice), Utah, Vermont, Washington (twice) and Wyoming-voted to increase their state gas taxes a total of 19 times.6 The average of all the state gas tax hikes was 4 cents. In most cases where the gas tax was raised, strong bipartisan support was the key to successful passage.7
Connecticut lowered its tax from 32 cents to 25 cents in 2000. In 2005, gas tax increases in Minnesota and South Carolina were voted down by the legislature and in Oklahoma by the voters. Arkansas voted down a 4 cent diesel fuel increase to help fund a bond program for interstate highway repairs in December 2005.8 Pennsylvania's complex oil company franchise tax resulted in a 1.2 cent increase in its gas tax effective Jan. 1, 2006.9 Michigan is considering the elimination of gas tax collections when the price of gas exceeds $2.30 per gallon.10
Two states raised gas taxes in 2005. North Dakota increased its rate by 2 cents to 23 cents. Washington passed a 9.5 cent per gallon gas tax increase in April 2005, to be phased in over four years; it is projected to raise $8.5 billion in the four-year period. Initiative 912, which would have repealed the increase, was defeated in the November 2005, election, with 47 percent in favor of repeal and 53 percent opposed. Voter support of the largest gas tax increase in the state's history was attributed to voter frustration with traffic congestion in the central Puget Sound area.11 To address public concern about accountability and efficiency in use of the funds, performance audit provisions were included in the legislation. The Washington Legislature voted in 2003 to raise the gas tax by 5 cents to 28 cents.