Today has turned into a day of gas tax increases and corporate handouts. Beginning early Tuesday, the House Finance committee met to discuss the Senate’s proposal to change the gas tax and also discussed McCrory’s request to double the Job Development Investment Grant program. Both proposals have caused contention and some elected officials are confused as to what is a tax increase.
Opening the committee meeting was a heated discussion about the state’s gas tax. The current gas tax is 37.5 cents per gallon. To understand why the discussion has focused around if the change is a tax increase or not, you have to understand how the state’s gas tax is calculated.
The tax is made up of two parts, a fixed component of 17.5 cents and the greater of 3.5 cents or 7% of the average wholesale price of motor fuel. When this formula was created, the cost of paving roads and road construction was directly tied to gasoline prices, now cars are more gas efficient and road construction costs are not directly related to gasoline as they used to be. The rate is set twice a year, January 1st and July 1st, to adjust for the change in gasoline prices during the year. While the current rate is 37.5¢ per gallon, if nothing is done the gas tax will drop to 29.9¢ per gallon in July per an updated forecast from the Fiscal Research Division in the House Finance committee this morning.
The proposals to change the gas tax have confused many, is it an increase or decrease? Under the Senate’s plan, the rate would be dropped to 35¢ and under the House plan the rate would be dropped to 36¢. On first glance, it looks as though this is a cut from the current rate. On second glance, knowing on July 1st the rate is expected to drop to 29.9¢ per gallon, changing the law to keep it from dropping is a tax increase.
So while some say it’s a tax cut because the current rate is higher than the proposed 36 or 35 cents, the truth remains….by setting the rate at this level keeps it from dropping. It also increases revenue to the state. Usually when there is increased revenue, that means it’s a tax increase.
Take a look at this chart and then it is clear – Senate Bill 20 is a tax increase.
| Department of Transportation | ||||
|---|---|---|---|---|
| Year | Aug 2014 Projection |
Feb 2015 Projection |
Senate Proposal |
House Proposal* |
| 2016 | 38.1 | 30.4 | 35 | 36 |
| 2017 | 40 | 31.3 | 36.4 | TBD |
| 2018 | 41.1 | 33.8 | 40.5 | TBD |
| 2019 | 42.2 | 34.2 | 41 | TBD |
*House Proposal is to be determined for the upcoming years because their version of the bill sets the rate at 36¢ for the rest of 2015 while they create a new gas tax formula. Because that formula isn’t created yet, the gas tax rate is unknown. The 36¢ rate is used to show a comparison with what the other scenarios even through the House version does not set a rate for 2016.
