Are Drivers Getting a Good Deal for Gas Taxes?

Are American drivers getting a good deal on roads for what they pay in gas taxes?

Most would struggle to answer the question since doing so would first require them knowing how much they pay in taxes at the pump. Americans are more likely to know how much they pay in sales taxes than they do in gas taxes. This is due to unique lack of transparency in transactions at gas stations.

By contrast, take the sales tax on groceries or other goods. Shoppers can readily know exactly how much they are paying in taxes through screens that display the sales tax as they check out, but for gasoline it’s not as easy. Gas is taxed at a rate different than the normal sales tax on goods and pumps don’t display how much tax is being added on to the purchase price. While paper receipts do display tax information, drivers often leave without printing off a receipt.

ALEC’s model policy, the Gas Tax Transparency Act, better informs drivers of how much they are paying at the pump.

The state of Washington already implemented a version of this model policy. The truth-in-labeling policy unanimously passed as a budget amendment in April 2017. Inspectors from the Washington State Department of Agriculture put sticker labels on pumps that indicate how much consumers pay in federal and state gas taxes during their routine inspections of gas pumps. Utah has a similar policy where officials post gas tax rates on gas pumps.

The Gas Tax Transparency Act requires state agencies overseeing gas stations to produce and provide stickers displaying gas taxes to station managers. ALEC’s model policy allows for more flexibility than Washington’s law by allowing gas station owners to display tax information in a manner of their choosing. For example, many pumps now have built in display screens that can be used to show gas taxes and station managers can choose that option over stickers.

While transparency is a good in and of itself, the model policy encourages accountability. ALEC’s model policy will help make elected officials more accountable to their constituents for how the spend gas tax revenue. The primary sponsor of Washington’s transparency policy, Rep. Cary Condotta, agrees: “With taxation must come transparency. I believe many people are not aware of the amount of fuel taxes they are paying when they pull up to the pump … With transparency also comes accountability. Our government is held more accountable if the citizens of our state are more knowledgeable about the taxes they are paying. Other states have this law in place.”

With greater accountability, the hope would be that money would be well spent on roads. In most states, the gas tax is at least partially tied to road funding so that it acts as a user fee. While this is the case in theory, reality is a different store.

Some states have high gas taxes, but poor road quality. Pennsylvania, for example, has the highest gas tax in the country but received a D- rating for its roads by Infrastructure Report Card. Texas, on the other hand, has one of the lowest gas taxes but somehow maintains the most total lane miles of road in the country. Shouldn’t more gas tax dollars mean better road construction and maintenance? Granted, gas taxes and infrastructure don’t operate in a vacuum. There are countless confounding variables affecting the economics and quality of public infrastructure. For Pennsylvania and Texas, snow is a major factor differentiating the two states’ road maintenance.

Furthermore, gas tax transparency is important since the tax is regressive. It hits lower and middle-income families harder by taking up a larger percentage of their budget and since every driver pays the same in taxes per gallon. Families in the bottom 20 percent of the income distribution spend 22 percent of their after tax income on energy versus just 5 percent for families in the top 20 percent.

This issue is ever more important in states like Washington whose Supreme Court in 2012 allowed lawmakers to impose taxes on gas not only for funding road construction and maintenance but any purpose. Now, some drivers are not only blind to how much they are taxed, they don’t even know where their tax dollars are going.

Granted, enacting a Gas Tax Transparency Act will not readily delineate what specifically gas taxes fund, contrasting how federal income tax receipts show which programs the collected tax finances. Nonetheless, making the model policy law will be a good first step to more transparency in revenue streams and more public accountability.