How could we pay for roads?
The General Assembly is in session, and the big issue this year looks to be
road funding. How will we raise the additional $1 billion or more that we
need to maintain our roads?
Funny thing, we seem to be wedded to the idea that those who use the roads
should pay for them. We donít always think this way for other expenditures.
We donít for K-12 education. The Constitution doesnít allow tuition for
public schools. The authors must have thought that an educated public
benefitted everyone, not just the kids and their parents.
You could make the same argument for roads. We all benefit whether we drive
or not. Even if you walk to the grocery store, the food on the shelves has
arrived in trucks, driven on roads.
But, for whatever reason, we want drivers to pay for roads. Thatís why we
accept excise taxes on motor fuel as a way to fund road maintenance. Cars
and trucks wear down the roads. Cars and trucks need fuel. Taxes on fuel
pay for roads. So owners of cars and trucks pay for maintaining the roads.
Lately the revenue from the excise taxes has not been enough to maintain
the roads. The excise taxes are levied as cents per gallon. Inflation has
driven up the price of maintaining roads, but the excise tax rates are
In the 20th century, fixed tax rates delivered ever-higher revenue because
Indiana fuel sales were rising. Since 2000, though, gasoline sales have
stagnated. Thatís partly due to slow economic growth. A growing economy
gets more people driving to and from work and delivering goods and
services. Stagnant sales are partly due to the high price of fuel in most
years between 2005 and 2014. Fuel sales began to increase some when prices
dropped in 2015. And, of course, stagnant sales are partly due to more
efficient vehicles. If cars put wear and tear on roads but donít use much
gasoline, that neat link between driving and road maintenance is broken.
What can we do? We could increase the excise taxes. The gasoline excise tax
is 18 cents per gallon, and it was last increased in 2003. There are two
special fuels excise taxes that add up to 27 cents per gallon, mostly paid
by drivers of big trucks. Those taxes were last increased in 1988. A penny
on the gasoline tax raises about $31 million, and a penny on each of the
two excise taxes raises about $21 million combined. We could index the tax
rates to consumer prices, so theyíd keep up with inflation. We could raise
registration fees at the Bureau of Motor Vehicles, or put tolls on the
interstate highways (with permission from the feds).
But here we are talking about tax increases, when weíre in the midst of
cutting taxes. The inheritance tax was eliminated after 2012. The
individual income tax was cut from 3.4 percent in 2014 to 3.23 percent this
year. The corporate income tax was 8.5 percent in 2011, is 6.25 percent
now, and is heading toward 4.9 percent by 2022. In fiscal 2017 these tax
cuts have reduced revenue by about $800 million.
Those taxes donít have much to do with wear and tear on roads. Weíve seldom
devoted general revenue sources to road maintenance, because thereís no
neat connection between the people who pay those taxes and the people who
drive on the roads. If those taxes had not been cut, would we be using that
revenue for roads? Probably not.
Then thereís the sales tax. Indiana is one of only seven states that
applies its general sales tax to motor fuel. At $2.25 a gallon our 7
percent sales tax yields about 15 cents. Multiply by the 3.1 billion
gallons of gasoline and 1.2 billion gallons of diesel fuel, and you get
$645 million. Thatís a tax on fuel sales paid by drivers. Devote that to
roads, though, and you leave a hole in the stateís general fund. That means
you either cut growth in education and health spending, or cancel those
income tax cuts.
House Bill 1002 covers road funding. It relies mostly on excise taxes and
fees. But the session has a long way to go.