Bill Hikes Gas Tax by 24%

Dale Kooyenga

State lawmakers have proposed changes to the way gas is taxed that would result in buyers paying more in taxes for each gallon of gasoline purchased.

The tax increase is part of a broad package proposed by Assembly Republicans that also includes raising the vehicle registration fees for some car owners, allowing counties to add a 0.5% sales tax to fund local roads, and directing the Wisconsin Department of Transportation to ask for an exemption from federal requirements that bar new toll roads. The transportation package is paired with a package of income tax cuts that would give extremely large tax breaks to earners with the highest incomes, while shutting out Wisconsin residents with low incomes (see New Income Tax Proposal Overwhelmingly Favors Highest Earners, May 2017).

Rather than increase the gas tax directly, lawmakers have proposed decreasing one tax and increasing another, in what seems to be an attempt to mask the fact that consumers would pay more in taxes when they buy gas.

Currently, consumers pay 30.9¢ in tax on each gallon of gasoline they buy. That amount was last increased in 2006 and has been frozen since then. With time, inflation has eaten away at the value of the tax. Partly as a result of the freeze, there is not enough money in the state’s Transportation Fund to pay for all the highway projects that lawmakers want to fund.

The tax package would expand the sales tax to include gasoline and deposit the new revenue into the Transportation Fund; currently, purchases of motor fuels are exempt from the sales tax. The proposal would also reduce the amount of tax applied to each gallon of gasoline, from 30.9¢ to 26.1¢.

The net result would be that consumers would pay 7.2¢ more in tax per gallon of gasoline than they currently pay, according to an analysis from the Legislative Fiscal Bureau – an increase of 24%. The tax increase would bring in an additional $230 million in revenue into the state’s Transportation Fund in fiscal year 2019.

Wisconsin Consumers Would Pay More in Taxes on Gas under Transportation Finance Proposal

It’s not clear what purpose it serves to expand the sales tax to gas purchases while reducing the per-gallon tax on gasoline. Over the long haul, one would expect fuel costs to rise and the sales tax to rise with it, but it will fluctuate and be a less predictable revenue source.

Assuming lawmakers wanted to increase the amount of revenue coming into the Transportation Fund, the simplest way would have been to lift the freeze on the gas tax and let it increase as other costs increase. Instead, they have proposed a complex change in funding mechanisms that seems designed to distract from the fact some fervently anti-tax lawmakers have now proposed a tax increase. Rep. Dale Kooyenga (R-Brookfield), an author of the proposal, doubled down on this strategy when he said that the increase in the total amount of taxes the state collects on gas doesn’t amount to a tax increase: “It puts more tax on the item but it’s not a tax increase,” he said (from Wisconsin GOP Lawmakers Embrace Changes to Gas, Income Taxes in the Milwaukee Journal Sentinel).

Proponents of the transportation finance package are trying to have it both ways: they want to fund transportation projects they believe to be necessary, but don’t want to appear to be increasing the resources that would fund those projects. If lawmakers want to increase resources available for build and maintain state highways, it would less complicated to simply lift the freeze on the gas tax rather than implement complex funding changes that seem to have no purpose other than disguising a tax increase.