Bad Bill of the Week: Billion Dollar Gas Tax Hike

Significantly lower gas prices at the pump the last several months have put more money in the pockets of NC motorists. But because of the adjustable portion of the state gas tax, lower gas prices would also mean less money to state government coffers. Apparently, some state legislators can’t accept that.

Senate Bill 20, IRC Update/Motor Fuel Tax Changes, sponsored by Sens. Bill Rabon (R-Brunswick), Bob Rucho (R-Mecklenburg) and Jerry Tillman (R-Moore), would alter the state’s gas tax formula, with the net impact over the next four years of costing North Carolinians an additional $1.2 billion in taxes.

North Carolina’s state gas tax is comprised of two portions: a specific set amount combined with an adjustable amount that varies according the average price of gasoline. As gas prices rise, so too does the adjustable portion of the gas tax, increasing the overall state gas tax. And vice versa when gas prices drop. The variable portion is adjusted every six months based upon the average gas prices of the previous period.

Due to the low gas prices of the last several months, therefore, the state gas tax is expected to drop by 6 to 8 cents per gallon in July, the next time the tax will be adjusted. But instead, SB 20 would set the gas tax at 35 cents per gallon as of March 1, and establish that amount as the floor for the tax. No matter how low gas prices drop, the tax would not be allowed to drop below 35 cents, according to SB 20.

Currently, the state gas tax is at 37 cents, so the immediate impact will be a 2-cent reduction, but that will be short-lived.  Recall that under current law, the gas tax is projected to drop perhaps below 30 cents per gallon, but under SB 20 it would be stuck at the higher 35-cent rate.

Forecasts by legislative economists and DOT officials project that the new gas tax floor would result in $1.2 billion more in taxes over the next four years compared to what tax rates would be under current law.

SB 20 also mandates that DOT eliminate 500 filled, full-time positions and a minimum of 50 vacant positions in order to achieve cost savings.

The gas tax provisions are inexplicably combined with other, unrelated tax provisions in SB 20. The other tax provisions focus on compliance with technical changes to the federal tax code. There is little justification for combining the unrelated provisions into one bill. A far better option would be to split them up and allow a vote on the different provisions as stand-alone bills.

Because it would result in a massive tax hike of $1.2 billion over four years on North Carolina motorists, and it combines unrelated tax changes that should be voted on in separate bills, Senate Bill 20 is this week’s Bad Bill of the Week.