In 2011, an attempt was made in the Utah Senate to increase the gasoline tax, but it was voted down. BallotPedia reports that in 2018, state tax on gasoline is 29.41 cents and federal tax is 18.4 cents, for a total tax of 47.81 cents per gallon. Since this tax started in 1923, it has grown at the rate of 3 percent per year. The Utah Legislature passed a law in 2015 that will automatically increase the tax yearly if average fuel price has risen (not to exceed 40 cents, based on “certain factors”).
The gasoline tax issue has been resurrected again in Utah. Our Schools Now, which had been pushing for a ballot measure for school funding in the November elections, agreed to a compromise with the Legislature. The legislative resolution passed in 2018 puts the proposition of a 10 cents per gallon increase in the state gasoline taxes to finance roads and, indirectly, education on the November ballot. If passed, it is only advisory.
The proposed increase in tax revenue will not be enough to meet the original aspirations of Our Schools Now to fund education. Using U.S. Department of Energy data on gasoline consumption in 2016, my estimates show that 10 cents per gallon tax will increase additional tax revenue by $124.69 million in 2018, $127.18 million in 2019 and $129.73 million in 2020, assuming 2 percent growth in gasoline consumption commensurate with population growth rate in Utah. Public education requires a large infusion of resources. This ballot measure is a small but important step in the right direction.
Logically, road and education financing sources should be separated. Selective highway tolls are an efficient way to finance roads, with the additional benefit of reduced congestion and pollution. The net effect of the price increase due to the gasoline tax, the growth in income and fuel-efficient motor transportation may result in smaller additional tax revenue to meet the needs for roads and education.
A better tax, given the heavy carbon dioxide (CO2) air pollution in Utah, is the carbon tax. Because it is a broad-based tax, its burden is distributed among all activities that emit CO2. Therefore, it has a great potential to raise substantial tax revenues and reduce CO2 at the same time.
Clean air is a common property resource. Therefore, any activity that uses it as a waste repository that causes harm to others should pay the price for the resource. Air pollution due to CO2 emissions results in costly damages to industries and human beings. A CO2 tax would be a market-based solution that would incentivize emitters of CO2 to use the least-cost strategy to control emissions. However, at the same time, it has a great potential to raise revenues in the foreseeable future to finance education and roads.
Professor William Nordhaus of Yale University reported in Economist Voice, September 2010, an optimum tax in 2015 prices would be between $12 and $25 per ton of CO2. It could be increased more if some of the revenue is used to decrease other market distortionary taxes, such as income tax that discourages work or a tax on savings that distorts capital accumulation. It could be adjusted by the inflation rate per year. In Utah, annual CO2 emissions from automobiles alone are close to 5.38 million tons in 2018, assuming 2 percent growth in vehicle ownership since 2016. If appropriately implemented, the carbon tax would stimulate economic growth in Utah due to a cleaner environment.
In summary, the gas tax is narrowly focused and only indirectly addresses the issues of CO2 reductions and highway congestion and it raises meager tax revenues. Besides other features outlined above, the CO2 tax distributes the burden of the tax, lessens the burden, if accompanied by reduction of other distortionary taxes, improves efficiency in markets and raises substantial amount of revenues, even if it is only levied on fossil fuels that contribute more than 90 percent of CO2 emissions.
Vijay K. Mathur, Ogden, is professor of economics, emeritus, in the Department of Economics, Cleveland State University, Cleveland, Ohio. He also writes blogs at mathursblogonomics.blogspot.com.