In 2008, the Minnesota Legislature increased gasoline taxes by 8.5 cents per gallon. It was an emotional debate at the Capitol, occurring just months after the collapse of the Interstate 35W bridge in Minneapolis. Skeptics like me were told that this tax increase would fund the backlog in necessary repairs on roads and bridges and make driving safer and more efficient. It was hard to argue otherwise after a bridge collapsed and 13 lives were tragically lost.
Gas-tax proponents also promised that the Minnesota Department of Transportation (MnDOT) would become more accountable for spending this infusion of funds by streamlining its procedures and making transportation funding more transparent. We were also assured that this significant influx of capital would generate enough revenue for road and bridge repairs for the next decade.
Amazingly, just a few short years later, transportation advocates are once again at the Capitol seeking a whopping $700 million in new taxes. While their arguments remain much the same, this year they seek to hide the gas tax in the form of a 5 percent tax on gasoline at the wholesale level — a hidden tax of nearly 15 cents per gallon, assuming a gas price of $3 a gallon.
This wholesale tax on fuel would generate more and more funds for transportation over time since it would increase as the price of gas increases. This additional tax would be on top of the current state and federal gas taxes totaling 47 cents per gallon. The new wholesale tax is estimated to bring in an additional $360 million per year.
There are many reasons to oppose this tax, but the most troubling aspect of it is the lack of transparency. Supporters of more money for MnDOT fashioned this “gross receipts tax” to make it more palatable to legislators in an election year, who would likely be skittish about voting for a direct increase in the excise tax on gasoline. Yet gas prices are a lot like grocery prices — increases in wholesale prices are passed along to consumers, making our costs increase every week when we fill up — whether our purchase is at Lunds or SuperAmerica. The $360 million MnDOT windfall would be money out of each of our pockets as we pay even more for the basic necessities of life. Moreover, consumers would face double taxation on each gallon of gas, since this tax would be levied both at the wholesale level and at the pump.
In comparison with neighboring states, Minnesota already collects a sufficient amount of revenue to support our transportation needs. If a wholesale gas tax were to be implemented, Minnesota’s tax would be more than 10 cents higher than Wisconsin’s, and more than 20 cents higher than that of Iowa, North Dakota and South Dakota. Furthermore, the Tri-State Transportation Campaign found that Minnesota planned to spend nearly $6.3 billion on transportation in fiscal years 2011-2014, compared with $5.5 billion in Wisconsin, $4.6 billion in Iowa and $4 billion in Michigan.
Last year, the Legislature gave Minnesota counties the option of enacting a $10 wheelage tax on motor vehicles. The Association of Minnesota Counties reports that more than half have voted to impose the tax, resulting in an additional $33.1 million annually for road and bridge repair. In addition, the Legislature gave counties the power to impose a local-option sales tax for transit and transportation. Combined, local governments and MnDOT spend close to $5 billion each year on roads, bridges, bus and rail transit, airports and other transportation-related projects. This amounts to nearly $1,000 per state resident spent on transportation. When I’m stuck in traffic or drive into a jarring pothole, I often wonder where all of this money goes.
Before we reward MnDOT with another long-term gas-tax windfall, we must reform the spending and planning process. Minnesota taxpayers deserve an honest discussion about a 21st-century transportation plan that will foster greater economic development all across the state. Part of that discussion must include greater transparency in how MnDOT spends our tax dollars and the agency’s plans for developing and maintaining the roads and bridges we already have. Minnesotans deserve answers to these and many other questions — answers that will determine if our state will remain economically competitive. It’s the right conversation for our state to have, but we shouldn’t assume before the conversation occurs that the answer is more gasoline taxes.
Annette Meeks is CEO of the Freedom Foundation of Minnesota.