Plan Calls for Immediate Gas Tax Hike of 5 Cents, Could Raise $6 Billion Over Next Decade
January 30, 2015
by Brett Healy
President, The John K. MacIver Institute for Public Policy
A new analysis of the Department of Transportation’s proposed gas tax formula shows it could raise over $6 billion in the next ten years and lead to the doubling of fuel tax revenue by 2024.
While the DOT has sold this plan to Wisconsin taxpayers as a “blueprint” to shore up the state’s transportation funding, it does little to rein in the department’s spending. In fact, it could lead to the exact opposite. Without a plan to reduce and reform spending, taxpayers will be the ones stuck with an ever-expanding bill.
Transportation Secretary Mark Gottlieb submitted his 2015-17 budget proposal in November. It included more than $750 million in tax and fee increases and $1.36 billion in additional transportation spending. The new taxes and fees include a restructuring of the gas tax, an additional registration fee on hybrid vehicles, an increased tax on the purchase of new vehicles, and funding from the state’s general fund.
Secretary Gottlieb said that the proposal would immediately increase the state’s gas tax to 35.9 cents starting on September 1st from its current level of 30.9 cents, a 16% increase. Diesel fuel would see an immediate increase to 40.9 cents from its current level of 30.9 cents, a 32% increase.
The sudden double-digit tax increases would have an immediate impact on Wisconsin taxpayers and our economy, but it is the increases over the next decade that should be even more troubling.
The DOT plan relies on a fixed and variable tax on gas and diesel. The variable side of the formula – which is based on the wholesale price of gas and diesel – could easily lead to ever-increasing taxes for years to come. In fact, if the wholesale price of gas and diesel increase at the same pace they did from 2003 to 2013, taxpayers would shell out an additional $1.07 billion in 2024 compared to this year.
Based on data from the Energy Information Administration and the state’s Department of Revenue, the gas and diesel tax is currently estimated to produce about $1 billion a year – meaning it could more than double in the next decade.
DOT defends these drastic tax increases by claiming the variable tax would not increase by more than 5 percent each year. However, the maximum does not set a hard ceiling on the fuel tax, it only delays the tax hikes. This could mean Wisconsin taxpayers may still face increases in years with stable gas prices.
Consequently, even with the cap in place, taxpayers could quickly be paying more at the pump.
The DOT secretary might call this a plan to shore up transportation funding, but it would do so on the backs of hard-working Wisconsinites.
Based on estimates using historical tax data, DOT’s gas tax formula would raise an additional $6 billion over the next ten years. This estimate does not include all the other tax and fee increases in the department’s plan, though. All the additional tax and fee increases would increase revenues even more.
Instead of simply raising more revenue to cover a wish list of construction projects, Secretary Gottlieb needs to find ways to reform spending and hold the line on taxes.
DOT already spends more than $6 billion per biennium. This plan would do nothing more than give the agency free reign to spend more and more of our money.