In a nod to the urgent reality of the situation, both the New Jersey Senate and Assembly have proposed bills that would raise the state’s gas tax from 14.5 cents to 37.5 cents per gallon to generate $2 billion per year for the Transportation Trust Fund. But in a nod to foolish politics, they’ve paired the gas tax increase with much larger cuts to other taxes.
The Senate bill would repeal New Jersey’s estate tax, raise an income tax exemption for retirement income, raise the state Earned Income Tax Credit from 30 percent to 40 percent of the federal credit, and create a tax deduction for charitable donations. The Assembly bill, backed by Christie and introduced at the last minute last week, also would raise the retirement tax exemption and would reduce the sales tax from 7 percent to 6 percent. After the first year of implementation, the Senate bill probably would cost more than $800 million annually and the Assembly bill more than $1.8 billion.
Neither the Assembly bill nor the Senate bill is an acceptable way to solve the problem. Simply put, New Jersey, just like the federal government, needs to raise its gas tax, full stop. Let me explain.
In a recent piece on this page, I quoted state infrastructure expert Elizabeth McNichol pointing out that 90 percent of non-defense infrastructure is owned by state and local governments that pay 75 percent of the cost of maintaining and improving this stock of roads, bridges, schools, water systems and so on. So New Jersey, like every other state, has a simple choice: either raise what you need to meet this obligation or let your infrastructure deteriorate. If you don’t believe that, let me assure you – as someone who rides the D.C. Metro – that if you ignore transportation infrastructure, it breaks.
There are at least two reasons why taxes that fund transportation trust funds — making them as much “user fees” as taxes — must be periodically raised. First, inflation. The costs of wages, benefits, rents and construction materials all go up over time. In this regard, it makes no more sense to believe you should pay 1990s prices for a gallon of milk today than to believe we can maintain our infrastructure on a gas tax that has been unadjusted for decades.
Second, and this is a very good thing, the national fleet keeps getting better mileage. In 2007, new cars got about 20 miles per gallon. Now they’re up to 25. That’s good for wallets and it’s good for the environment. It’s bad for gas tax revenue.
And to be clear, New Jersey is not alone. The federal government is in exactly the same bind, with a failing highway trust fund because of a refusal to raise the federal gas tax that has been set at 18.4 cents a gallon since 1993.
Given these realities, it requires magical thinking to convince yourself that we can provide and maintain a healthy, productive infrastructure with no increase in its funding source – i.e., the gas tax. You wouldn’t teach your kids that they can have what they want in life without paying for it. Yet that is the implicit message in this gas tax debate thus far.
But aren’t I being unfair here? Haven’t Christie and the New Jersey legislature agreed to raise the state’s gas tax?
Yes and no. As noted above, their proposed increases in the gas tax have been made wholly contingent on cutting some other taxes, which is just another version of the same magical thinking.
If the gas tax increase is revenue neutral or worse, revenue losing, that means that although there may be more money in the highway trust fund, there’s less somewhere else, and thus other spending cuts must be forthcoming. As the analysts at New Jersey Policy Perspective point out, the proposed Assembly bill would lose about $17 billion over the next 10 years “as the price for finally enacting a gas tax increase for essential transportation capital funding. … At a time when the state already cannot meet its current and future obligations, invest in the assets that grow a strong state economy or provide a strong safety net for its neediest residents, blowing a hole of this magnitude in the state’s budget is reckless, short-sighted and – indeed – unfair.”
Perhaps there are some more benign tax trade-offs that will still be revenue positive, like those listed here. But if you ask me, the thing to do, both in Jersey and the nation, is man up, stop the magical thinking and the bad fiscal parenting, and raise the gas tax to make the necessary investments in productivity-enhancing, job-creating transportation.
It’s that simple. Or, at least, it should be.