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1 The Minnesota Gas Tax Bill PA 5232 September 12, 2008 Greta Alquist Michael Collins Di Xuan2 Introduction In February of 2008, a governor veto was overridden in Minnesota in order to pass Minnesota House File 2800 – the transportation bill. While this bill covered many aspects of transportation funding for the state, one of the hottest topics in the public eye was the increase in the state gasoline tax. As with any increase in taxes, there was opposition to the idea of paying even more at the pump that Minnesotans were already doing as fuel costs rose from forces outside the realm of governmental decisions. Yet, the bill passed. Not only did the bill pass, it overcame a veto from Governor Pawlenty as bipartisan support guided what would have been previously seen as a partisan bill. The context of these events is inarguably pivotal to the outcome of this policy change. In this paper, we introduce a brief history of gas taxes in Minnesota and the United States. We then take the reader through some of the issues surrounding this particular gas tax bill and summarize the contents. Finally, we discuss some of the contextual components of the passage of the gas tax bill and question the potential alternative if the context had been different. History Before the year of 1919, property taxes, poll taxes, and labor levies were the main sources for road funds (Burnham 1961). After assembly line was invented by Ford in 1913, automobiles were manufactured in large scale, which put forward great challenge to transportation as many vehicles poured into narrow roads and traffic congestion became severe. With the rapid increase in vehicle usage across the nation, the need to build roads to handle cars was great. The roadways had to be wide enough to match with the size of cars, rather than horse carriages and the government had to spend a large amount of money to build long broad roads. Despite efforts, the speed of road construction could not keep up with the growth of automobile usage. Thus began the long history of conflict from roads and automobiles, as tax levies were used to pay for roads (Williams 2007). In 1919, Oregon became the first state to levy gas tax all over the country, with initial amount of 1 cent per gallon. Minnesota residents had to pay tax for usage of gas beginning in 1925. By 1959, every state had enacted its own gas tax.3 Table 1 Early Gasoline Taxes in the States Over time, gas tax rates have been increased greatly in all the states: from 1 cent to today’s average of 46.9 cents per gallon (this includes federal, state and local charges and accounts for about 30% of the gas price). Figure 1: The Growth in Gasoline Taxes the Growth in Minnesota Gasoline Tax!"#!#"$!$"%!#&$"#&$&#&%'#&(##&(&#&)%#&)'#&'"#&*!#&*##&*%#&*(#&**$!!!$!!*cents per gallon Source: Minnesota Tax Handbook (2006 Edition) Gas Tax Today in Different States As shown in Table 2, California levies the highest gas tax with more than 60 cents per gallon, while residents in Alaska have the lowest with the rate at less than 30 cents per gallon. The states that have the highest gas taxes are mostly distributed in the west of America and around the Five Great Lakes as seen in Figure 2. Minnesota has a gas tax of less than 40 cents per gallon and ranks 36th in the U.S.4 Table 2 Total Tax Rates on Gasoline by State, July 2007 Federal Rate Plus State Rate Plus Average Local Rate (Cents per Gallon) Figure 2 Combined Local, State and Federal Gasoline Taxes, July 2007 Gas Tax in Different Countries At present, more than 130 countries in the world levy the gas tax, including Germany, Holland, Norway, Greta Britain, Canada, Australia, and New Zealand.5 It is worth noting how much each country charges on gasoline to put gas tax rates in the U.S states in perspective. Compared to the amount of the tax in other countries, he U.S. has the lowest gas tax in the world. The gas tax in Great Britain (50 pence per liter) is equivalent to $2.80 per gallon, which is three times the wholesale pre-tax price (Wachs 2003). Although British residents complain of the high gas tax, the government insists on it and regards gas tax as an efficient way to limit the usage of automobiles, which can reduce traffic congestion and greenhouse gas emissions. Early in 1934, Congress passed the Haydon-Cartwright Act to clarify the purpose of gas tax. It stated: “Since it is unfair and unjust to tax motor vehicle transportation unless the proceeds of such taxation are applied to the construction, improvement or maintenance of highways, after June 30, 1935, Federal aid for highway construction shall be extended only to those States that use at least the amounts now provided by law . . . for the construction, improvement and maintenance of highways and administrative expenses in connection therewith…and for no other purpose” (Dunn 1978). Today, gas tax is distributed into two Funds, and is divided into three parts: the Leaking Underground Storage Tank Fund, and the Federal Highway Trust Fund, including the Highway Account and the Mass Transit Account. Take federal rates in 2007 for example. One tenth of the gas goes into the Leaking Underground Storage Tank Fund for clean-up at gas station sites. Among the Federal Highway Trust Fund, the highway account receives 15.44 cents for each gallon of gasoline, while the mass transit account receives 2.86 cents. Concerning whether gas tax should be raised, advocates and opponents have their own reasonable explanations. Martin Wachs listed eleven main reasons why the government should raise gas tax, as follows:6 Reason Detailed Explanation User Fee Fuel Taxes Are User Fees That Send “Price Signals” To Motorists To Use The Transportation System More Efficiently 1)motor fuel tax revenues are used to support subsidies to public transportation 2)support subsidies to public transportation 3)carpool 4) switch to public transit Fairness Fuel Taxes Are Fairer Toward The Poor Than The Alternatives Currently Available 1)those whose poverty precludes them from driving are not charged 2)to the extent that fuel taxes are “diverted” to transit expenditures, lower income people are the primary beneficiaries 3)sales taxes are paid by people whether or not they use highways Demand Elasticity Drivers Show Remarkable Tolerance For Fuel Price Changes The cost of fuel is only a small part of


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U of M CE 5212 - The Minnesota Gas Tax Bill

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