Whither the Iowa Gas Tax?

Guest contribution by Mark White.  Guest posts do not necessarily reflect the views of Liberty Iowa.

Fuel taxes in the state of Iowa have always been a source of controversy, normally a conflict between the perceptions of rural and urban residents.  For the past three years, proposals to increase the tax on gasoline to provide more funding for the Iowa Road Fund to address a variety of road, bridge and maintenance projects across the state’s robust system of primary, secondary and farm-to-market roads have reopened those tensions.

Current proposals to increase gas taxes by as much as 10 cents per gallon have not only created tension along the normal fault lines of urban versus rural residents (as well as party identification), but have also created disagreement amongst conservatives in the state.  While inflation, enhanced gas efficiency of cars, the introduction of electric/hybrid automobiles, and rapidly changing driving habits since the last increase in state gasoline taxes in 1989 have dramatically reduced the funding of the Iowa Road fund in real dollars, increasing its funding through either higher taxes on gasoline or allocations from the general fund are equally bad ideas.

Even if one accepts the premise that the Iowa Road Fund is in need of increased funding, allocating the budget for it from the general fund is the worst of the available options.  It is more arbitrarily redistributive than the fund’s expenditures currently are, unnecessarily subjects the Road Fund to the normal legislative appropriations process – worsening the potential for diversion to non-transportation projects, and dilutes the first principle of Republicanism that the idea of fuel taxes rests upon: That those who use a public good, to the extent possible, should pay for it.

Ultimately, one needs look no further than the Federal Highway Trust Fund as an example of a crown jewel of public goods management that descended into a crony capitalist tool for earmarks after 1999 when general funds started to be used to augment its revenue.  Today, less than 60% of the Federal Highway Trust Fund’s expenditures are devoted to highway maintenance and construction; the balance is committed to a variety of earmarks.

While gas taxes are a better method of funding road maintenance and construction than income tax revenue, they are also an increasingly flawed solution.  Despite theoretically being funded by users, the Iowa Road Fund has historically been a source of conflict over the perceived redistribution of income from urban to rural areas.  It has, furthermore, been subject to increased expenditure diversion to such things as nighttime taxi services, business specific road improvements, public park enhancements, local commercial district enhancements, and a variety of local projects only tangentially related to transportation.  Moreover, the increased fuel efficiency of automobiles, the introduction of alternatively powered vehicles, and a reduction in miles driven per person is undermining the foundation upon which the gas tax provides a public good.  An increase in such a tax at this moment of technological and social change relating to road usage would only exacerbate the inherent flaws in the current system, making it arbitrarily more redistributive and emphasizing its current subsidies to specific beneficiaries.

There is also the question of the magnitude of necessity for infrastructure repair in the state.  Much of Iowa’s farm to market road system was developed in the 1930’s as part of the Works Progress Administration funding.  While the consequence of the WPA’s work in Iowa was the nation’s finest farm to market road network, it was a system developed without regard for its maintenance.  As agriculture has become highly automated and more productive over the past ¾’s of a century, farms have grown in size and sophistication.  There is now a legitimate concern that we simply have too many miles of roads in the state to maintain for a population the size of Iowa’s and that many of the miles are not needed and/or redundant.

Rather than make the colossal error of increasing the noble but flawed gas tax for all Iowans, there are several alternative actions that the state can immediately implement to improve road and transportation funding.  Since the condition of Iowa’s roads and bridges have been characterized as in critical need of funding by Michael Gronstal, among others, it would make sense for the Iowa DOT to eliminate or minimize all non-transportation related grants and investments from its budget.  The DOT should invest, however, in a comprehensive review of Iowa’s farm to market roads in conjunction with each county with an objective of de-commissioning 10% or more of the road mileage in the state and returning such mileage to productive use.  Increasing registration fees on hybrid and electric vehicles is another option as their owners are currently receiving a significant use subsidy with the current funding structure.  Eliminating or reducing the ethanol tax subsidy should also be an option, as would a minor increase in diesel fuel taxes which are currently set at a rate that subsidizes heavy truck traffic, which is a major cause of road maintenance requirements.

Ultimately, the current trends in transportation are intensifying the previously minor flaws in the revenue basis for the Iowa Road Fund – fuel taxes.  Technological and behavioral changes will continue to put pressure on the states and the federal government to find an alternative scheme to fund our transportation infrastructure based on some form of use taxes.  In the meantime, enhancing the negative consequences of the current structure by increasing tax on gasoline, or magnifying them through general fund appropriations, is a bad idea, particularly when so many alternatives exist to address the funding of maintaining our critical infrastructure.

005-2550-av-df-RET-Mark White-red tie-Dodgen Photography copy
Mark White relocated to Iowa from New York City 20 years ago to take a position with a local manufacturer.  Since that time he has been involved in a variety of start-up ventures in Iowa, around the US and in Asia.  He has also been a long term activist in local politics, primarily with the Polk County Republican Party and as a contributor to several publications. 

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