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Gassed in Jersey

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Gassed in Jersey

Garden State drivers get a lesson in how taxes work. September 5, 2018
Economy, finance, and budgets

It’s a fundamental economic principle: if you tax something, you get less of it. New Jersey legislators tried to protect themselves against that law in 2016, with legislation raising the state’s gas tax by 22.6 cents per gallon, designed to provide the state with an additional $1.2 billion a year for a state transportation trust fund that had gone broke. The law carried the provision that if revenues fell short because drivers bought less of the higher-priced gas, then the tax would automatically increase.

Not surprisingly, New Jersey is getting less from its new gas tax than the state anticipated. Projecting that revenues would bounce back, former governor Chris Christie delayed the legislation’s mandated tax increase. New governor Phil Murphy, who seems never to have met a tax that he didn’t like, has cast aside those projections and slated a 4.3 cent per gallon increase, giving Jersey one of the highest fuel levies in the nation—a nearly 200 percent increase, in just two years.

Advocates for the original tax hike, including the Democratic-controlled legislature and Governor Christie, justified it on the grounds that the state needed money to restart essential infrastructure projects that had been halted when the state ran out of money. They argued that the increase wouldn’t be as painful as critics alleged because New Jersey had one of the lowest gas taxes in the country, but their calculation understated the burden on Jersey drivers because the state imposes comprehensive costs on car ownership and travel.

The Federal Highway Administration collects data on revenues that the states have available for spending on roads, bridges, and mass transit. The largest sources of those funds are receipts from gas taxes and tolls. While New Jersey’s gas tax was low, the state imposed some of the highest tolls in the nation on drivers; by contrast, 20 states collect no toll revenue. Together with gas-tax revenues and other fees related to driving, Jersey collected the seventh-highest transportation revenues of any state, even before it raised its gas tax; every state that spent more was considerably larger. Now, with the added revenues from the gas tax, total transportation-related fees have increased significantly. Jersey now collects more revenue per capita from drivers than any other state.  

If New Jersey was already taking in so much revenue before the gas-tax increase, how did it manage to bankrupt its trust fund? Governors going back to Jim Florio and Christie Whitman in the 1990s took the gas-tax money, supposedly reserved for building and maintenance, to paper over budget deficits. Similarly, commuter train line New Jersey Transit, which is supposed to use its share of the gas revenue to fund capital projects, instead directed some of it toward paying its ever-increasing burden of employee salaries and benefits. On top of that, politicians regularly used transportation funds to heap on new debt, until most of the money available for transportation was already earmarked to pay off bonds that the state had floated years before. As the trust fund went broke, Jersey continued to demand that workers on its projects be paid the so-called prevailing wage— that is, the equivalent of the highest union wages in the region. New Jersey also maintains an extensive transportation bureaucracy, including separate administrations for various highway agencies, and has resisted calls to consolidate and trim it.

Some legislators demanded that the 2016 law raising the gas tax include funds for a study on how to reduce costs, but as is typical in the Garden State, the bill that Trenton ultimately passed contained no funding for the state to examine its own spending. The result is essentially the largest overall burden imposed on drivers in the nation, with no sense of whether the money is being spent wisely.

New Jersey once enjoyed a competitive edge with low fuel prices, attracting businesses from neighboring states. Writing to a local newspaper after the gas-tax increase, one Jersey driver noted how he would regularly fill up his car in-state before leaving, so as not to pay higher prices elsewhere. He assumed that others, including out-of-state drivers passing through, did the same. That worked to the state’s advantage. “We used to benefit from cheap gas prices in New Jersey, subsidized by out-of-state users,” the writer observed. No more.

The clause in the legislation to trigger higher taxes in the event of a shortfall portends a future of cascading increases. At the least, New Jersey residents are learning a valuable economics lesson, though I doubt it’s one that state schools will add to the syllabus.

Photo: Roman Tiraspolsky

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