Oklahoma’s gas tax needs a tune-up

In 1987, the median family made $21,691. Today they make more than twice as much. In 1987, the average gas price was $1 a gallon; today it is nearly $3. In that year, the Oklahoma Gazette voted Remington Park Race Track as the best “Evidence That OKC Is Coming Alive” and Liberty Tower (now Chase Tower) as the “Downtown Skyscraper.” Today we have the OKC Thunder, and the Devon Energy Center tops Chase Tower by more than 300 feet.

In 1987, the state gas tax was set at 17 cents per gallon. Today, it is… 17 cents per gallon.

Most taxes don’t need to be updated every year to keep up with the times. Income tax, sales tax, property tax, and motor vehicle tax are all calculated at least partially as a percentage of some economic activity. When prices, incomes, or property values go up, so do these taxes, so they are able to naturally adjust with inflation.

But since Oklahoma’s gas tax is a static number of pennies per gallon, its ability to fund our highways and other transportation needs goes down every year. Oklahoma has gone 26 years without updating its gas tax, a period longer than every state except Alaska. Over that period, the tax has lost more than 45 percent of its value.

It’s true that increasing the gas tax in Oklahoma has proven to be very unpopular. The last attempt to increase it through a State Question in 2005 received just 12.8 percent of the vote. But even if raising the tax is unpopular, we are paying for neglected maintenance in other ways. According to the American Society of Civil Engineers, 70 percent of Oklahoma roads are in poor or mediocre condition, and driving on roads in need of repair costs Oklahoma motorists $978 million a year in extra vehicle repairs and operating costs, or $425 per motorist.

We’ve also paid by taking resources away from other core services. As the gas tax declined, Oklahoma has diverted an increasing percentage of income tax revenues to roads and bridges. Last year Governor Fallin and the Legislature passed a plan to divert an additional $18 million of income tax revenues to the ROADS fund each year, bringing the annual cost to $59.7 million. They’ve done this at a time when almost every other state agency struggles with budget cuts or flat funding. This year, the diverted funding for transportation is part of the reason why general revenues are coming in significantly below projections, which could force the Legislature to implement mid-year budget cuts or tap the Rainy Day Fund.

Fortunately, there is a simple way for Oklahoma to reform its gas tax to keep up with cost inflation and avoid the problem becoming worse. It would be a simple matter to change the gas tax to a percentage of the purchase price, just like any other sales tax, rather than cents on the gallon. 

We could do this without disrupting small businesses. To make it easier to process fuel tax refunds to Indian tribes, Oklahoma’s gas tax is assessed at the wholesale level before it ever reaches a pump. The gas tax percentage could be calculated to match or even reduce the current cost to taxpayers, in exchange for better sustainability as a revenue source over time. This was one of the policy recommendations coming out of this year’s Oklahoma Academy, which focused on transportation issues. Virginia recently implemented a similar reform and saw prices at the pump decrease.

With Oklahoma’s obligations mounting, and our tax revenues increasingly inadequate to meet them, this commonsense reform to the gas tax should be high on the agenda. We need good roads and transit to attract business, and we need to pay for them without draining resources from equally important core services like education and health. A gas tax tune-up would bring us closer to a 21st Century tax system needed to ensure Oklahoma’s prosperity in the years ahead.