July 30, 2008
Forbes on Gas Tax Holidays
By Ashlea Ebeling
With Americans driving less, the federal flat tax on gasoline of 18.4 cents per gallon is bringing in fewer dollars and starving the federal highway fund. But in some states, it's a very different story.
Since January, the average tax per gallon has risen in 16 states, according to a new report from the American Petroleum Institute. That has pushed the July 1 nationwide average tax on a gallon of gasoline, including the federal levy, up to 49.4 cents a gallon from 47 cents in January, the API calculates. The increase was due to taxes at the state and local level.
Are state politicians brave (or crazy) enough to raise taxes on gas when their constituents are feeling so much pain at the pump? In general, no. But in addition to a flat per-gallon charge, a majority of states levy other taxes, including state, county or local sales taxes, plus various environmental and other charges.
The six states with the highest current per-gallon charges—California, Connecticut, Illinois, New York, Michigan and Indiana--all levy taxes based on a percentage of the price of gasoline, meaning when the cost of gas goes up, the state's tax take per gallon goes up too.
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"The states consider themselves, in general, to be horribly besieged budgetarily and aren't talking about anything to reduce revenue from any source," observes the Tax Foundation's William Ahern.
