October
1995
Gasoline Taxes and Transportation Funding
A brief look at the data
Introduction
Infrastructure funding is a topic receiving considerable scrutiny from public policy experts in
this state and around the country. Transportation projects are among the most vital components
of infrastructure investment. Much of California's transportation funding is derived from
gasoline taxes. This Research Brief, by Cal-Tax Director of Research Stephen Kroes, provides a
look at data on gasoline taxes and transportation funding in California.
Gas Tax Rates
In 1990, voters approved Proposition 111, which doubled gasoline taxes, raising the rate by nine
cents per gallon over four years. In 1993, the federal government doubled its gas tax, raising the
tax by another 9.4 cents per gallon.
Table 1 shows how California's gasoline tax compares to other states. The state gas tax itself is
about average compared to other states. However, California state and local governments also
levy other taxes on gasoline, including the sales tax and other levies related to the sale or storage
of gasoline. Table 1 converts these other taxes into an effective per-gallon levy, based on
gasoline prices in June of this year. When these other taxes are added for all states that levy
them, California ranks eighth highest among the states in gasoline taxation.
In California, the sales tax is levied on the full price of gasoline, including the 36 cents per gallon
state and federal excise taxes. Some states do not apply their sales taxes to the excise tax portion
of the price, and some exempt gasoline from sales tax.
Transportation Funding
Figure 1 shows California state and local government spending per $1,000 of personal income on
transportation. California has spent considerably less than the average state on transportation,
but began closing the gap somewhat after 1989. The additional tax revenue from Proposition
111 has helped to produce the increase. Figure 1 is derived from latest available federal Census
Bureau data. It is uncertain whether the upward trend has continued.
Source: U.S. Department of Commerce, Bureau of the Census and Bureau of Economic Analysis.
Cal-Tax calculations.
Table 2 provides some insight into the competing priorities for tax funds. The table shows
California state and local spending per $1,000 of personal income, listed in order by each
category's rank against the other states. Similar to the illustration in Figure 1, this table shows
California's investment in highways is much lower than other states, ranking 49th in the nation.
Pressure for Tax Increases
Many transportation experts assert that further gas tax increases are needed to keep up with
transportation construction and maintenance demands. Fuel taxes have typically been viewed as
similar to user fees, because they are correlated with the amount of road usage and are earmarked
for transportation uses. However, changes in technology are causing fuel taxes to grow slower
than the amount of vehicle miles traveled. Two factors are prominent in this dilemma:
- Increasing fuel economy of newer cars is causing less fuel to be consumed per mile of
travel and, hence, less fuel tax collected per mile.
- Increasing use of alternative fuels, such as methanol and compressed natural gas, which
are not taxed as much as gasoline or diesel fuel. Increasing use of electric vehicles will
have the same effect.
Recent years have also seen some transportation revenues diverted to other uses, which
exacerbates transportation funding problems. Some of the funds have been diverted to fund
urgent seismic safety upgrades of bridges and overpasses in the wake of serious earthquakes.
More recently, Orange and Los Angeles counties won approval of a legislative package that
allows the counties to divert local transportation funds for general purposes. The diversions were
requested because of serious fiscal difficulties in those counties. Those bills are awaiting the
governor's approval.
As policy makers consider increased fuel taxes, some taxpayer concerns should be highlighted.
First, California's tax and fee burden is already high. Cal-Tax's Taxing and Spending publication
shows that California state and local taxes and fees per working taxpayer add up to almost
$6,000. That ranks California sixth highest against all other states and highest among the
western states. Those western states are California's chief competitors for new jobs.
Another concern is the nature of fuel taxes and their impact on the economy. Figure 2 shows, for
different income groups, the percentage of income consumers spend on gasoline and diesel fuel.
Consumers in low-income ranges spend a much greater share of their income on gasoline.
Therefore, taxes on gasoline have a regressive impact, imposing greater difficulty on low-income
consumers than on higher-income groups.
In addition, further research is needed to examine why California ranks so high in gas tax rates
but so low in transportation funding.
Source: DRI/McGraw Hill analysis for American Petroleum Institute. Cal-Tax graphic.
© Copyright 1995, California Taxpayers' Association. All rights reserved.