Yesterday, Maryland governor Martin O’Malley released his proposal to restructure Maryland’s gas taxes to raise $3.4 billion for transportation over 5 years. The plan is superficially similar to the recent Virginia transportation funding bill, but improves upon it in several ways.
Maryland needs new revenue this year. Without it, the Purple Line, the Corridor Cities Transitway, and the Baltimore Red Line could all stop moving forward.
The key to the bill is a new 2% wholesale tax on gasoline. Wholesale taxes differ from normal gas taxes in that the gas distributor pays them rather than the consumer. The distributor then usually passes the tax along to consumers via higher prices.
The plan partially offsets this wholesale tax by reducing the normal gas tax, from 23.5¢ per gallon to 18.5¢ per gallon. But the plan would also index the new lower gas tax to inflation, so it would increase slightly each year.
Taken together, overall tax revenue from gas would go up by about 2¢ per gallon as soon as the bill takes effect. In 2014 the 2% wholesale tax will increase to 4%, increasing gas tax revenue by another 9¢
Maryland’s bill versus Virginia’s bill
Both bills reduce the normal gas tax but add new wholesale gas taxes. But while Virginia plans to reduce its total gas tax and subsidize highway building with revenue from other sources, Maryland’s proposal sticks to the principle of transportation user fees.
Unlike Virginia’s bill, Maryland’s does not include new fees on hybrid car owners, increases to the sales tax, nor any taxes on land or hotel visits.
Like Virginia’s bill, Maryland’s specifies that if Congress allows states to raise internet sales taxes, Maryland will do so, and will allocate some of it to transportation. If Congress doesn’t allow an internet sales tax by 2015 then Maryland’s wholesale gas tax will increase from 4% to 6%.
One thing Maryland’s proposed bill does that Virginia’s does not is to index transit fares on MTA buses and trains to inflation. That will put more burden on transit riders, but will also provide MTA with a more predictable budget.
Since Maryland cannot impose rules on WMATA without agreement from DC and Virginia, WMATA fares will not be indexed to inflation.
Smart Growth advocates are generally more supportive of O’Malley’s proposal than the Virginia bill. Montgomery County councilmember Hans Riemer says the bill “appears to be a very strong plan and just what Maryland needs to get big infrastructure projects going.”
The bill will undoubtedly face stiff opposition from Maryland Republicans, so its passage is no sure thing. But O’Malley’s proposal is co-sponsored by Senate President Mike Miller and House Speaker Michael Busch, so it is clearly a serious initiative with a real chance of becoming law.
Cross-posted at BeyondDC.