A Tale of Two Taxes

If you drive in the Show-Me state, you pay two gas taxes—one of 18.4 cents per gallon to the federal government, and the other of 17 cents per gallon to the state of Missouri. Both taxes were set up in the early 20th century to fund highways, and neither tax has been increased since the 1990s. Now, at both the federal and state level, policymakers are looking to raise the gas tax. But the similarities end there. The tax increase proposed by the Obama administration and those proposed in the Missouri legislature are far apart in scale, and are philosophically opposed as well.

Take the Obama administration’s plans for a $10 per-barrel tax on oil, which could translate into a whopping 25 cent per gallon fuel tax increase, more than doubling the current rate. That might not seem like an outlandish proposal given that the federal highway trust fund has been broke for years and the price tag to reconstruct aging interstate highways could be over a half a trillion dollars in the coming decades. But that’s not where all the money would be going. Instead, at least half of those funds, $32 billion a year, would go to “green infrastructure,” or any project that could plausibly reduce the country’s use of fossil fuels.

With 20% of the federal gas tax already going to transit, the link between the federal gas tax and federal highway spending is strained. The Obama administration’s plans would break the link and turn the federal gas tax into just another source of money to spend on grand plans for the American economy.

Contrast that with the efforts of the Missouri legislature. State lawmakers are proposing a modest 1.5 cent per-gallon gas tax increase (and a 3.5 cent per-gallon increase for diesel fuel) to correct serious funding issues at the Missouri Department of Transportation (MoDOT). Policymakers fear that without additional revenue, MoDOT may not be able to keep the highway system in a good state of repair or take on necessary reconstruction projects. Raising the fuel tax just a couple of cents per gallon would raise almost $60 million for MoDOT, and millions more for local road departments. [See here for a comprehensive analysis of the challenges facing Missouri's transportation infrastructure and several possible solutions.

Because Missouri’s constitution stipulates that all fuel tax revenue must be spent on roads, none of the money can go to transit or bike trails or “green infrastructure.” Raising the fuel tax would shore up the highway system’s user funding base and make sure that those who benefit from roads the most will pay for them.

Alternative state-level proposals, like Amendment 7 (the transportation sales tax), would have had Missourians pay for highways regardless of how much, or how little, they drive. Missourians overwhelmingly rejected Amendment 7, but even now some policymakers have proposed taxing tobacco and diverting general revenue to fund highways. While they are not fuel tax increases, policies like Amendment 7, which subsidize highways along with local pet projects, have more in common with Obama’s proposed oil tax than the proposed state gas tax increase.

In Missouri, a small tax increase would have drivers pay a little more for roads, and could also head off proposals that would force all Missourians to subsidize driving. At the federal level, the gas tax would more than double, with drivers bankrolling grand attempts to transform the economy.

Sometimes similar proposals have far different implications. Let’s hope that in this case, their legislative paths have very different endings.