NC Budget and Tax Center

Gas tax would be capped under Senate’s tax plan despite growing transportation needs

Last week, the Senate approved a tax plan that would drastically reduce needed revenues and shift the tax responsibility downward, away from the wealthiest tax payers.

This tax plan would also reinstate the cap on the state’s gas tax, which is a revenue source that accounts for more than half of state revenues dedicated for transportation projects. If the plan passes, the cap would be in place for the current 2013-14 fiscal year that began last week, resulting in a $5 million loss to the transportation budget that supports road construction, road maintenance, and public transportation.

Five million dollars is a very small share (.2 percent) of the $2.8 billion transportation budget. The larger cause for concern is that budget writers are following the imprudent precedent set by lawmakers from both sides of the aisle who keep enacting short-sighted, quick fixes to the gas tax—rather than reforming the structure of the tax to smooth its volatility.

Last summer, with the support of former Governor Perdue, state lawmakers capped the gas tax at 37.5 cents per gallon for the 2013 fiscal year that just ended. The rate would have been 37.7 cents without the cap. Before that, legislators capped the gas tax at 29.9 cents from mid-2006 to mid-2009. And once this cap expired, legislators ditched the cap and converted it into a floor at the same 29.9 cents per gallon rate.

All told, these quick fixes have resulted in hundreds of millions of fewer dollars to address the state’s aging infrastructure but the average motorist has only seen minimal savings at the pump.

Reinstating the gas tax cap when North Carolina must confront a large and growing gap between transportation needs and funding makes little fiscal sense. The state Department of Transportation estimates that North Carolina faces a $60 billion shortfall for transportation improvements through 2040, and that the state needs to come up with $32 billion just to keep the status quo. And, the American Society of Civil Engineers’ 2013 report card exposes North Carolina’s backlog of stressed roads, bridges, and railroads. For instance, their research shows that nearly 1 in 2 of the state’s roads is in poor or mediocre condition.

While it is true the current structure of the gas tax leads to great volatility and needs reform, capping the gas tax year after year does nothing to address this problem.  Placing a cap on the variable, price-based component of the gas tax—rather than the overall gas tax—would smooth volatility and lead to a more stable and predictable rate.

Indeed, to build and maintain a reliable transportation system that is efficient and safe, lawmakers need to maintain revenue sources, such as the  gas tax, that generate adequate funding to address the growing strains on North Carolina’s transportation infrastructure.

One Comment

  1. Doug

    July 9, 2013 at 10:50 am

    So if they tax gas less….maybe cut a check for the difference to the NC DOR? Who is with me? I believe on the state tax forms there is still that sales tax section where you can pay the difference between what you should have paid in the state and what you may have paid elsewhere……how about you just gross up until you feel you have paid your fair share? Or is it OPM (as usual) that you are after?

    You guys all need to do your part, I sense everyone here has liberal guilt for not paying their “fair share”. How about you guys add “lead by example” to the issue too?