Report Explains Risk of Capping NC’s Gas Tax

May 24, 2012 at 2:27 pm

We had previously blogged about the effort by some state legislators to cap the gas tax at 37.5 cents per gallon, and now the NC Budget and Tax Center has a new brief about how the cap would threaten the state’s transportation infrastructure. The gas tax, which accounts for more than half of the state’s revenue for transportation, has two components: one flat tax of 17.5 cents per gallon and another variable tax of 7 percent of the average wholesale price of gas over the previous 6 months.  The variable portion is adjusted twice per yer.

Although it seems like the gas tax has been high in recent years, the brief shows that when adjusted for inflation, the actual purchasing power of gas tax revenues is low compared to historical rates.

At the same time, the cost of construction and materials has increased (and is projected to continue to increase), further eroding the ability of these revenues to meet the state’s transportation needs. This is particularly important when considering the fact that many of the state’s roads, bridges, and railways are in need of repair or upgrades.  In addition, reducing transportation revenues could threaten funds available for other state programs and investments, as other states have diverted general funds to support transportation, in light of funding gaps.

An efficient, working transportation system is a key component of economic development. The Budget and Tax Center recommends limiting the volatility of the price-based component of the gas tax, while maintaining the flat rate. This would allow for a more stable revenue stream, but would also ensuring that the tax still kept up with changes in costs.

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