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Sunday, February 5, 2023

Gas-Tax Hike Is a Non-Starter

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By John Hood

As North Carolina keeps growing, so will the need for our governments to ensure the adequate provision of an essential service: mobility. As they tackle the problem, policymakers need to keep two facts in mind.

First, while the state legislature has enacted several necessary reforms of how we fund highways and streets, the job is far from complete. For a century now, North Carolina has relied overwhelmingly on taxing motor fuel, even more so than the average state because we don’t have county road networks funded by property taxes.

Taxing fuel was a good, market-friendly idea. The more motorists drove, the more fuel they bought and the more tax they paid. It was the best-available approximation of a user fee, the proper way to pay for enterprises that aren’t entitlements (like public safety or education) but that for technical reasons can’t be fully private, either, as it’s overly expensive and in many places impossible to charge tolls.

In recent decades, however, the system has been unraveling. Cars and trucks are increasingly fuel-efficient. That’s wonderful for consumers but has the effect of reducing the revenue collected per mile traveled.

For a time North Carolina compensated by raising the gas-tax rate, either directly or indirectly. That strategy has run its course. The public’s willingness to accept higher prices at the pump is pretty much gone. At the same time, most people recognize the need for road investment.

In a recent survey by North Carolina State University’s Institute for Transportation Research and Education, 53% of respondents said North Carolina should increase spending on roads. But when presented with a battery of revenue options, few picked gas-tax hikes as their top choice. Instead, most picked either increased reliance on sales taxes — precisely what the General Assembly began to do in last year’s state budget — or a new fee on motorists based on how many miles they drive.

Now for a second reality check. While both the increased efficiency of gas-powered vehicles and the onset of electric vehicles contribute to the gap between road use and revenue, the EV factor is much less significant. For the immediate future, at least, going electric is impractical for North Carolinians who use their vehicles for more than just daily commutes from home to office and back.

It’s not just the higher sticker price for the vehicles. Today’s batteries don’t hold enough juice and take far too long to recharge. Filling up a gas tank takes about five minutes. “Filling up” an EV battery takes about half an hour. This isn’t just an inconvenience for many motorists and a deal-killer for some. It makes it impossible for regular-sized stations and convenience stores to remain viable businesses. Using these estimates, a 14-pump gas station can serve an average of 10,080 vehicles over 12 hours. An EV station with equivalent infrastructure could serve only 1,680.

In other words, if North Carolina policymakers choose to pursue a vehicle-miles-traveled fee, they’re going to have to figure out a way to do it that assumes gas stations will continue to play a huge role in fueling our travel.

In a John Locke Foundation report published last year, transportation analyst Randal O’Toole argued that the state should begin by inviting people to opt into a program for collecting fees based on miles driven. In exchange for reporting and paying the fee when they renew their vehicle registrations — or perhaps paying through some sort of transponder-based network installed at gas pumps — these early adopters would become exempt from gas taxes. The next step would be to require EV users to use the system, and then to move all other motorists to it. At that point, North Carolina would get rid of its gas tax altogether.

The only practical alternative to the mileage-fee model would be for politicians to go bigger on sales-tax hikes. I think that’s a bad idea on policy grounds. Still, it’s clearly salable to voters in a way that gas-tax hikes are not.

John Hood is a John Locke Foundation board member. His latest books, Mountain Folk and Forest Folk, combin

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