Photo by maistora on Flickr.
Maryland is considering raising its gas tax. This long-overdue measure would allow some of the general revenues now subsidizing highways to go to the Purple Line, the Baltimore Red Line, and MARC expansion instead.
This need has unfortunately gotten mixed up with a proposal, originating mostly from the highway lobby and its supporters, to put transportation money into a “lockbox.” The concept is to amend the state constitution to forbid transfers from the trust fund into the general fund.
However, there’s a big hole in the bottom of the “lockbox.” Contrary to what some say, the money in the transportation trust fund mostly come from revenue sources that would have otherwise have gone into the state’s general fund, where it wouldn’t be locked.
If I buy a bicycle in Maryland, I pay 6% sales tax and the money goes into the general fund where it pays for education, public safety, the governor’s salary, and other state expenses. Cars and gasoline are exempt from the sales tax.
Instead, if I buy a car, I pay the same 6%. but it’s called “titling tax” and the money goes into a separate trust fund that is used only for transportation. It’s essentially the same when I buy gasoline, where the tax rate of 23½ cents a gallon comes to a little over 8% of the pretax price.
On the surface, it seems like most of the money in Maryland’s Transportation Trust Fund comes from drivers. But that’s only a surface appearance. In reality, the sales tax exemption gives drivers a subsidy that cancels out most of what they pay into the trust fund. Every time someone chooses to spend money on a car or gasoline, the state’s taxpayers are deprived of the sales tax revenue we would have received if something else had been purchased instead.
When you take the sales tax exemption into account, taxes on cars and gas are not “user fees” — money that you pay if you drive and don’t pay if you don’t drive — they are taxes that you pay whether you drive or not.
The only real user fees that drivers pay into the trust fund are car registration fees and the 2% difference between the tax rate on gasoline and the regular sales tax. Fares from MARC commuter rail and Baltimore buses go into the fund too, as do revenues from BWI airport and the Port of Baltimore. (Washington Metro fares and bridge and tunnel tolls are also user fees, but they go into separate accounts.) All the user fees, taken together, make up less than half of the Transportation Trust Fund.
Not so long ago, drivers were paying much more. in 1993, gasoline was much cheaper and the tax came to 27% of the price. The consequence of the sharp drop in highway user fees has been a squeeze on the transportation budget. The Maryland legislature is now debating whether to fix this by raising the gas tax. Drivers would then pay a slightly larger, but still small, fraction of the cost of the roads they use.
While new transportation revenues are badly needed, putting them into a “lockbox” makes little sense. Most of the money in the trust fund comes out of the general fund in the first place. And for that very reason, the amendment wouldn’t really accomplish much. A future legislature, blocked from taking money out of the fund, could simply choose to put less in. It might, for example, change the name of the titling tax to sales tax. The “lockbox” amendment locks the top of a box that has a big hole in its bottom.
But ideas have consequences. The idea behind the lockbox amendment is that drivers pay for the roads they drive on. This idea is mistaken, but it’s widely held, and it’s an enormous obstacle to sensible transportation planning. The danger lurking in the lockbox is that this damaging misconception could be reinforced, making it even harder to correct failed transportation policies.
Ben Ross is Vice-President of the Action Committee for Transit.