Building a Better Gas Tax for South Carolina

South Carolina could generate an additional $407 million in transportation revenues by updating its gas tax to reflect changes in the cost of transportation construction according to a report out today from the Institute on Taxation and Economic Policy (ITEP).

Revenues for highway construction, the state share of which is funded largely out of our 16 cent per gallon gasoline tax, face two challenges.  Our gas tax was last raised in 1989.  Because our gas tax is based on volume rather than cost, revenues do not increase as the price of gas goes up nor do they increase as the cost of highway construction and maintenance increases.  Had the tax kept pace with the costs of highway construction, our gas tax today would be 28 cents. And, as cars and trucks are made more fuel efficient, the per-mile revenue decreases.

As the report notes: “The chronic under-funding of state transportation networks should be addressed in the short-term with  gas tax increases, and in the longer-term  by reforming state gas taxes so their revenues can keep pace with the rising cost of building and maintaining a transportation network.”

In introducing legislation to reduce the SC gas tax, Rep. Bakari Sellers attacked it as a regressive tax.  No doubt the gas tax hits more heavily on low-income than upper-income South Carolinians.  But there are way to address that regressivity through a refundable, low-income tax credit that would make low-income families whole in the face of increased gas taxes.

The gas tax can be improved by raising it, but also making it more like a sales tax so that as prices go up revenues go up.  As South Carolina tries to develop economically a critical factor will be whether we have the infrastructure to attract and support that development.  Crumbling bridges and roads will undermine that development.

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