State Officials Push for Ad Valorem Gasoline Tax

The current federal gasoline tax is a fixed rate: 18.4 cent per gallon. So while gas prices go up, the tax collected on each gallon remains the same. Here’s a chart from the American Association of State Highway and Transportation Officials (AASHTO) showing how inflation erodes the adjusted revenues from the tax:

AASHTO is pitching that Congress switch the gasoline tax to an ad valorem tax, one based on a percentage of the value of the sale price. Like a sales tax, they suggest a rate of 8.4% for gasoline and 10.4% for diesel. They estimate that as gasoline prices rise, that would result in an additional $43 billion in federal revenue over six years, revenue they want spent on transportation projects.

The Wall Street Journal suggests that the proposal may be used in Lame Duck session bargaining after the election:

Florida Rep. John Mica, the ranking Republican on the House Transportation and Infrastructure Committee, said that any proposal that would have Americans paying more at the pump would be a “non-starter.”

“Anyone that thinks the new members who are coming to Congress, whether Republican or Democrat, are going to vote for a gas-tax increase—they’re smoking some kind of funny weed,” Mr. Mica said.

Still, the Obama administration has a key bargaining tool—the Bush-era tax cuts. Democrats could potentially offer to drop their opposition to extending cuts for the wealthy in exchange for Republican support for a White House-backed bill authorizing additional infrastructure spending.

Samuel Skinner, a former Transportation Secretary under President George H.W. Bush who attended Monday’s meeting at the White House, said lawmakers from both parties have indicated in personal conversations that they expect those two matters to be the main issues debated in the lame-duck Congress.

More on gasoline taxes here.