It’s not set in stone yet that the Tennessee State Legislature will be asked to approve a hike in the gasoline tax in the coming year, but it should be.
While we see most taxes as generally detrimental to business, the Tennessee gas tax is actually in need of being raised or replaced with something more effective for the betterment of business in the volunteer state. And despite the fact that toll roads are more just (only direct users pay the fee for service, while those who don’t use the road are under no obligation to pay for it), the odds of Tennesseans approving a toll road model statewide are slightly lower than the odds that Donald Trump publicly admits he’s a democrat sent to sabotage the Jeb Bush campaign.
So the gas tax hike is the simple, sound solution.
Solution to what, you may ask?
What it’s always been a solution to: paying for roads and bridges – both repair of existing infrastructure and construction of new byways.
To date, the gas tax has served its purpose. Tennessee has used it to great effect to build some of the best roads and bridges in America without incurring debt to do so. The problem isn’t that the gas tax is a bad system. It’s just that road prices have gone up while the amount of money wwcollected has gone down. We just need to tweak the rate.
The current Tennessee gas tax rate is 21.4 cents per gallon. Each penny of that generates a little shy of $31 million in revenue.
Let’s look at it in business terms. Imagine a key materials supplier to your manufacturing business had been raising its prices incrementally over the last 25 years while you held your prices steady, eating the cost increase rather than passing it on to your customers.
In fact, let’s say that supplier has increased the price you pay for raw materials by 20 percent over the last 10 years alone. Most of us run on margins that wouldn’t allow us to eat that kind of increase for 10 quarters or 10 months, much less 10-25 years.
Now let’s say that while you’ve held the line on price per unit, your sales volume has declined over the same period in which your materials cost has been rising.
Eventually, you will be squeezed out of business unless you begin passing the cost increase along to your customers or find another revenue stream. There comes a day of reckoning.
This is exactly what has been happening to the state of Tennessee in regards to the gas tax. The Department of Transportation has had to do more with less every year as its costs have risen and revenues declined. Now, the day of reckoning is upon us.
Barring a miracle, one of three things will happen: Tennessee will begin passing its costs on to the taxpayers of tomorrow by using debt to pay for road and bridge projects, Tennessee will raise the gas tax to pass its costs on to taxpayers of today, or Tennessee will begin losing jobs by telling would-be new employers that it can’t afford to build new roads to where they want to put a new factory – and by telling existing employers it can’t afford to maintain the road over which their trucks carry product.
Moving into a debt position just as interest rates are about to start rising is folly. Discouraging private investment and new jobs by failing to provide the services business depends on pushes the economy in exactly the wrong direction. A gas tax hike, however, would barely be felt by the vast majority of those paying it.
The average price per gallon of regular 87 octane gas in the state of Tennessee the week of Sept. 27, 2015 was $2.00, according to AAA, which keeps a running tally of gas prices state-by-state on a weekly basis. 52 weeks prior to that the price per gallon for the same gas in the same state was $3.13.
Some would argue that the price of gas could easily rise to that level again, leaving taxpayers with higher prices and higher taxes. That’s true. But we still would be paying less per gallon than we were 18 months ago, when the price per gallon was more than $3.50.
By raising the gas tax the same amount that happens naturally in week-to-week market price swings, Tennessee could raise half a billion dollars and virtually no one would notice the change.
Twice in the last six months (once in February, then again in April) the price of gas has risen more than 15 cents per gallon over a two-week period. The economy did not screech to a halt.
Yet with each penny of gas tax generating about $31 million in revenue, a 16-cent increase would net $500 million.
A gas tax hike would not be a big government shakedown of the taxpayers. It would merely be Nashville showing it understands the cost of doing business, and is willing to ask taxpayers to do their part in helping the state incentivize the creation of new jobs and private investment in Tennessee.