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Gas tax hikes pile up: States become desperate for road repair revenue as COVID-19 reduces driving

As Americans drive less during the pandemic, due partly to social distancing and remote work arrangements, gasoline demand has fallen.
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Americans who want to stay socially distant during the COVID-19 pandemic now have another reason to think twice before going out for gas.

Several states have increased gas taxes in recent months to make up for sudden shortfalls in revenue devoted to road repairs.

As Americans drive less during the pandemic, due partly to social distancing and remote work arrangements, gasoline demand has fallen. That’s one key factor triggering the tax increases as lawmakers seek to limit the impact of lower revenue on road repair budgets.

Supporters say the increases, most of which were triggered automatically due to existing laws, are necessary to keep transportation infrastructure in good shape.

Critics say the gas-tax increases are poorly timed and will hurt low-income drivers at a time when they are more likely to be facing unemployment, reduced hours or pay cuts.

Gasoline demand is currently about 15% lower than usual, according to oil analysts.

Gas prices fall, gas taxes rise New York City resident Adam Librot, who used to fuel up his SUV when he drove across the river to go shopping in New Jersey, is upset about the state’s plan to increase its gas tax by 9.3 cents per gallon to nearly 51 cents, not including the federal levy.

“This is the latest in a string of disincentives to go to New Jersey,” he said.

But Librot said he does not expect many locals to notice the tax increase because people typically blame fuel increases on oil companies.

“It’s embedded in the price,” Librot said of the gas tax. “It’s hidden from sight, so unless you’re aware of it when the flurry of articles come out, it’s gone from the headlines and you don’t feel the tax itself.”

States averaged 36.4 cents per gallon in gas taxes and fees as of July 1, according to the American Petroleum Institute. The federal tax of 18.4 cents, which is added to the state taxes, hasn’t changed since 1993.

Recent increases have included Virginia (5 cents), Nebraska (3.9 cents), California (3.2 cents), South Carolina (2 cents) and Illinois (0.7 cents). Increases coming Oct. 1 include New Jersey and Alabama (2 cents).

Oil Price Information Service analyst Tom Kloza predicted that more hikes will follow since gasoline demand will remain around 85% of normal demand for the foreseeable future.

“We think there will be a ton of them,” Kloza said. “Most of them are going to come after the election, (taking effect) Jan. 1 or July 1 of next year.”

The problem is that while the gas tax increases are likely to fund tens or hundreds of millions of dollars in road repairs, they won’t make up for a projected $5 billion loss in revenue due to declining gasoline demand, DeHaan said.

“It’s hard to quantify as a windfall because so many of these states have just been decimated,” he said. “It’s akin to putting a Band-Aid on a gaping bullet hole in the middle of your chest.”

Still, lawmakers need to consider the economic burden of gas tax increases during the pandemic, said Ulrik C. Boesen, senior policy analyst at the Tax Foundation, a Washington-based think tank.

“That being said, gas taxes pay for our roads, and it is appropriate that the people who use the roads pay for the roads,” Boesen said in an email.

“But even though 36 states have raised gas taxes over the last decade, currently, there are very few states that raise enough money from transportation-related taxes to cover transportation-related expenses.”

As a result, lawmakers are expected to look to other sources, such as general fund revenue, to help pay for road repairs.

“If gas taxes aren’t raising enough revenue, taxpayers are simply funding the roads through other taxes,” Boesen said.