Press Release

Analyst: Cap the Gas Tax

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RALEIGH – Gov. Mike Easley and leaders of the North Carolina General Assembly are resisting calls for halting a hike in the gas tax that took effect earlier this week, saying that the move would hamper needed highway investment. But a new analysis from the John Locke Foundation challenges the link between maintaining the tax and improving the state’s roadways.

North Carolina’s excise tax on gasoline jumped nearly three cents a gallon at the start of 2006, from 27.1 to 29.9 cents. This gas-tax windfall was not in the state budget when it was passed, observed Joseph Coletti, fiscal policy analyst at the Raleigh-based think tank, so no projects would be harmed if it were rescinded, as some lawmakers and many citizens wish.

The reason for the increase is the way North Carolina’s tax is calculated, Coletti said. It combines a flat rate of 17.5 cents per gallon with a semiannually adjusted rate of 7 percent of the average wholesale price of gasoline during a set, six-month period. The state tax on motor fuels was previously eighth highest in the nation, but as of January 1 it is the sixth highest, said Coletti. N.C. drivers pay more in taxes per gallon of gasoline than drivers in neighboring states.

“This 2.8-cents-per-gallon increase is affected by the price spike from Hurricanes Katrina and Rita,” Coletti said. “As it stands now, a one-month spike would affect North Carolinians for the next six months.”

Would capping the tax at last fall’s rate take $135 million out of planned state road construction, as Easley, House Speaker Jim Black, and Senate President Pro Tem Marc Basnight claim? Not necessarily, Coletti said.

“The budget passed last summer counted on a gas tax 2.7 cents per gallon lower than the rate in effect today,” Coletti said. “The most a cap would cost the state would be $5.3 million, not $135 million. Sen. Basnight or Speaker Black could easily pay for that just by giving up their $5 million shares in Dept. of Transportation discretionary funds.”

Nearly $400 million of N.C.’s gas tax goes toward non-road expenditures, Coletti said. “If we want to get serious about road construction, then we should stop using the gas tax to subsidize airline recruitment, the Global Transpark, even public transportation and a bicycle program,” Coletti said. “Why do ferries and railroads get $21 million apiece from gas tax revenues?”

Joseph Coletti’s Spotlight report, “N.C.’s Gas Tax Can Be Cut; Road Construction Wouldn’t Be Harmed,” is available on the John Locke Foundation website. For more information, contact JLF Fiscal Policy Analyst Joseph Coletti at 919-828-3876 or [email protected].

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About John Locke Foundation

We are North Carolina’s Most Trusted and Influential Source of Common Sense. The John Locke Foundation was created in 1990 as an independent, nonprofit think tank that would work “for truth, for freedom, and for the future of North Carolina.” The Foundation is named for John Locke (1632-1704), an English philosopher whose writings inspired Thomas Jefferson and the other Founders.

The John Locke Foundation is a 501(c)(3) research institute and is funded solely from voluntary contributions from individuals, corporations, and charitable foundations.