Gas tax increases recently passed by lawmakers in Maryland and Virginia are both aimed at a common target: relieving the traffic congestion strangling key regions in both states. And while they were shaped by very different sets of political forces, both levies are likely to have similarly modest economic impacts.
In Maryland, political power is concentrated in the hands of Democrats in the urban corridor connecting the D.C. suburbs with the Baltimore region. There the new gas tax — which raises the levy by 4 cents in July and by as much as 20 cents by 2016 — will be shouldered by drivers statewide.
That angered rural legislators, many of them Republicans, who argued that their constituents will be forced to pay more despite seeing little benefit from the increase, because the biggest planned transportation projects are new rail lines in the Washington and Baltimore regions.
In Virginia, where the bulk of growth is in the prosperous suburbs near Washington, political power is more diffuse. Republicans control the House and the Governor’s Mansion — the Senate is evenly split — and downstate and rural lawmakers hold sway. The result was a gas tax increase that will place the biggest burdens on areas that will see the most improvements — congested Northern Virginia and Hampton Roads.
Despite the differences, economists say the impact of the taxes will be relatively small. Although any tax increase is a drag on an economic recovery that has been lagging, the overall cost of the increases to motorists in both states is projected to be modest.
In Virginia, supporters say the average motorist will pay as much as $15 extra per month. Maryland motorists who drive 15,000 miles a year in a car that gets 22 miles per gallon face a $27 annual gas tax increase in July, according to calculations by officials at Towson University’s Regional Economic Studies Institute. That number would increase to $136 a year if the entire 20-cent tax increase is phased in by 2016.
“It is a rather inconsequential amount, but psychologically it has a bigger impact,” said Daraius Irani, executive director of the institute. “People will drive out of their way to say they got 10 cents or 5 cents off the price of gas,” even though the overall savings is often minimal.
The tax increases in both states place a bigger burden on people who earn less. Even though people who earn more tend to consume more gasoline — and will pay more taxes at the pump — percentage-wise the increase is still heavier for those who earn less.
According to the 2011 Consumer Expenditure Survey, middle-income Americans who brought home annual after-tax income of $45,563 spent $2,694 — or nearly 6 percent of their income — on gasoline and motor oil. Top earners, who average $153,326 in after-tax income per household, spent an average of $4,073 — or about 2.6 percent of their income.
Virginia’s newly passed tax replaces the state’s 17.5-cents-per-gallon tax on gasoline with a 3.5 percent wholesale tax on motor fuels that will keep pace with economic growth and inflation.
The deal also boosts the sales tax on nonfood merchandise from 5 percent to 5.3 percent and allocates a bigger share of existing state revenue to transportation instead of other services. The plan also raises the sales tax to 6 percent in the parts of the state most in need of road improvements — Northern Virginia and Hampton Roads — and requires the new money to be spent on transportation projects in those areas.
Maryland’s gas tax increase would add between 13 and 20 cents a gallon by mid-2016. The higher taxes would be phased in over several years, starting with the 4-cent increas in July. Under the bill, a new sales tax of 3 percent also would be imposed. The full increase will not take effect if Congress allows states to collect taxes on out-of-state Internet sales, in which case the new revenue would be earmarked for transportation projects in Maryland.
Republican lawmakers in Maryland said the increase puts too great a burden on motorists since a large share of the money will probably go to mass transit projects, including the Purple Line in suburban Washington and the Red Line in Baltimore.
Officials working for Gov. Martin O’Malley (D) responded by assuring lawmakers that some of the money generated by the legislation would be used for road safety projects, bridge repairs and commuter bus service in rural parts of the state.