Dan O’Donnell on why Wisconsin is wise not to follow Illinois’ lead in raising its gas tax.
June 5, 2019
Special Guest Perspective by Dan O’Donnell
In something of a surprise, the Republican-led Wisconsin Legislature has rejected Governor Evers’ effort to raise the state’s 32.9 cent per-gallon tax on gasoline in an effort to close a projected $1.1 billion budget shortfall.
Raising the gas tax is a short-sighted solution to a long-term problem. So naturally, Illinois is diving in headfirst. Click To Tweet
Assembly Speaker Robin Vos, who has long been open to the possibility of raising the gas tax, told a group of conservatives last week that “an increase…to fund Wisconsin’s transportation projects is off the table,” the MacIver News Service reported exclusively.
This about-face has left Evers scrambling, as he believed that his proposed eight cent per gallon hike was a potential opening for negotiation with an eye toward a compromise at four or five cents per gallon.
Not a chance, Senate Majority Leader Scott Fitzgerald told the Milwaukee Journal Sentinel on Friday. In a news release later that afternoon, Vos agreed that any increase at all would be “tough to get done.”
As well it should be. Raising the gas tax is a short-sighted solution to a long-term problem. So naturally, Illinois is diving in headfirst.
On July 1, Illinois’ gas tax will double from 19 cents per gallon to 38 cents. That, combined with the 18.4 cents per gallon federal tax, means drivers in Illinois will pay 56 cents in tax on every gallon of gas they purchase—a total of $10.08 every time they fill up an 18-gallon tank.
Assuming that the average driver fills up once a week, he or she will pay $524.16 just in gasoline taxes each year. Illinois’ new tax comprises $177.84 of that; a whopping 34 percent.
Such a dramatic increase in the middle of the summer vacation season will have an immediate impact on driving habits. Generally speaking, when gas prices are higher, people drive less—especially those for whom the added price is a more significant factor.
Gas taxes are among the most regressive in America, as they have a disproportionate impact on those who earn lower incomes (and, not coincidentally, tend to drive older, less fuel-efficient vehicles). Someone earning $200,000 isn’t likely to notice or care much about having to pay $13.68 more per month in Illinois gas taxes. Someone earning $20,000 certainly will, and they will modify their driving habits accordingly.
An even more significant concern for Illinois—or any state dependent upon a gas tax to fund transportation infrastructure—is the American consumer’s long-term driving habits, from ride-sharing to electric cars. Click To Tweet
An even more significant concern for Illinois—or any state dependent upon a gas tax to fund transportation infrastructure—is the American consumer’s long-term driving habits. Ride-sharing has made private car ownership much less of a necessity in cities like Chicago, while car companies themselves are clearly preparing for a future without gasoline.
By January of 2018, the world’s automotive manufacturers had already spent upwards of $90 billion researching and developing electric vehicles.
“We’re all in,” Ford Motor Company CEO Bill Ford, Jr. told Reuters after spending an estimated $11 billion on electric.
Just two months ago, General Motors—the country’s largest carmaker—announced a $424 million investment in production of a new electric-powered Chevrolet. Earlier in the year, Steve Carlisle, president of GM’s Cadillac brand, said the company was going “all in” on electric vehicles.
“[By the] early to middle part of the next decade, all transportation will be electric,” he told the Chicago Sun-Times. “Once you say that’s the way the world is going to be, it comes down to, ‘So how do we get there?’”
Even online retail giant Amazon, which has been at the forefront of global technological trends for more than a decade, is betting big on electric vehicle technology with an estimated $700 million investment in a company that has been developing an all-electric pickup truck and SUV.
Once this technology is widely available and, crucially, affordable—perhaps in as little as five years—gas tax revenues will plummet, leaving states dependent on them scrambling to plug even greater budget deficits than those they face today.
Wisconsin, then, would be (as per usual) wise not to follow Illinois down this road. Governor Evers believes that an initial eight-cent gas tax hike coupled with a yearly increase of another cent to tie the tax more closely to the rate of inflation could bring in several hundred million dollars in revenue per year, but this estimate just isn’t based in reality.
The easiest way to reduce public consumption of a product is to tax it, and the quickest way to convince consumers to make the leap to an electric vehicle is to make the price of keeping their old gas guzzler too great to justify.
If, as the automotive industry predicts, electric vehicles will dominate the roads in just a few short years, increased dependence on a steadily rising gas tax would leave Wisconsin with a new and even more pressing problem: What can it do when the product it has been taxing no longer exists?